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The best way for most investors to buy and sell crypto is through an exchange. However, if you are a wealthy investor looking to buy or sell crypto tokens without significantly changing prices, you should use a dark pool. But what is a crypto dark pool and why is it needed?


What are crypto dark pools?

Dark pools are privately organized crypto exchanges where securities transactions are conducted. They allow institutional investors and organizations to buy and sell large amounts of securities with each other without revealing transaction details to the wider market.

Dark pools are effective for institutional investors executing block trades. A bulk transaction is a large privately negotiated transaction. Such transactions generally have no criteria and are so large that they can cause a major change in the price of a security.

How does a Crypto Dark Pool work?

Dark pools allow large fund owners to buy and sell assets privately, reducing the impact of these transactions on market prices. Imagine a situation where you place a sell order on a stock or any other security. Then an institutional investor places a buy order on the same security using very large funds.

Such a buy order can significantly change the market price, resulting in a bullish move. If you had seen the large investor’s order earlier, you would have changed your order to a buy order or entered no order.

Other traders who see such a large order in the order book will also react. As a result, some who intended to go bearish can take a bullish position, changing market sentiment. If this happens often, the market sentiment will also change constantly, which will reduce the efficiency of the market. On the other hand, when these trades are not visible to the public, we expect to see less impact on overall market sentiment, which is why dark pools are needed.

Dark pools also ensure that there are no slippages during transactions. With this, institutional traders can be sure that their trades will be executed at the expected price. This also makes them very effective in illiquid crypto markets. Trades are usually matched in dark pools taking into account the best bid and ask prices.

Dark pools are not necessary for most retail investors because their trades cannot cause a significant change in the general market price. They also won’t need the privacy and anonymity associated with dark pools.

Dark Pool Trading Risks

Dark pools are not transparent and operate under very little oversight compared to other exchanges.

They also give some investors advantages that others may not have, increasing the risks of unethical practices and conflicts of interest. Of course, whether this is a risk depends on whether you are the one profiting from dark pool trading.

Crypto dark pools offer safer solutions

The way transactions are carried out on crypto dark pools is quite different. Transactions can be carried out on several blockchains without the need for an intermediary, using smart contractswhich makes it very difficult for anyone to have an unfair advantage over another.

Large trade orders are usually split into smaller orders before connecting them to buyers to ensure security and anonymity.

Crypto dark pools also have better verification techniques and other protocols that make price manipulation very difficult. As a result, they offer fair market prices for everyone.

Are decentralized dark pools a sustainable solution?

The main setbacks of traditional dark pools are solved in crypto dark pools. Traditional dark pools tend to promote unethical practices and are not very transparent. However, decentralized solutions like the one described in the previous section make crypto dark pools efficient and transparent, and you should expect them to continue to play an important role in the crypto markets.

Perhaps other financial markets will also adopt decentralized solutions, such as smart contracts, for better security and transparency.



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