Dark Pool
A blockchain-based dark pool is a private financial exchange designed for trading securities, derivatives, or other financial instruments while ensuring high levels of privacy and anonymity. Unlike traditional exchanges where order books and trade details are publicly visible, dark pools operate in secrecy, minimizing the information disclosed to the public.
By leveraging blockchain technology, these dark pools enhance trustlessness and programmability through smart contracts and decentralized protocols. However, maintaining transaction confidentiality while implementing the core features remains a significant challenge.
FHE-based Solution
With Fully Homomorphic Encryption (FHE) and zkFHE, a dark pool can allow participants to trade without revealing their identities or the specifics of their orders. Below are the key steps involved in this solution:
Initial Setup
Imagine a decentralized application (dApp) called DP providing the core features of a dark pool. The first step is for the dApp to communicate with the zkFHE network, requesting a subset of zkFHE nodes to generate a shared public key (PK).
Order Submission
When submitting a new order, the participant encrypts the order details using the shared public key (PK) before sending it to the dark pool. This ensures that sensitive information like asset type, quantity, and price remains confidential. For instance, the price can be encrypted as Enc(price, PK), where the price is represented as a signed number for a buy or sell order.
Matching and Execution
The matching process identifies compatible buy and sell orders based on criteria such as price and quantity. This can be achieved by periodically requesting matching computations from the zkFHE network. For example, computations for matching orders on the same asset type could include:
This operation compares the sum of the encrypted prices against an encrypted zero to determine if the buy and sell orders can be matched. The result is threshold-decrypted to verify the match.
Account Settlement
Once matching orders are identified, the traded quantity is determined as mq = Min(Enc(quantity1, PK), Enc(quantity2, PK)). The dark pool then executes the trades by updating the encrypted account balances of the participants using homomorphic addition and subtraction. Throughout this process, the actual data remains encrypted.
Conclusion
While the above example outlines a simplified approach, a real-world blockchain-based dark pool would involve more complex operations. However, using zkFHE techniques, it is feasible to develop a fully functional, low-latency on-chain dark pool application that provides both privacy and efficiency.
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