From the DarkPool.Design Researchathon in Brussels on July 13, 2024
Our breakout group focused on the question: How do you quote in dark pools?
Open Questions:
How would this work practically?
- If everyone were to use dark pools, you would lose optimal price discovery thus losing the greatest benefits
- if goal of dark pool is to find mid/market price then must have some opaqueness
- How does zk work with dark pools?
- there’s pi squared, maybe now risk squared
Why is quoting important
- different services have different goals
- setting objectives
- different DEX designs for quoting
- tradeoffs for each quoter
Quoting Strategies
- users need to know what price to expect
- optimistically - Uniswap, good marketing & UX
- pessimistically - CoW, poor marketing & less risky
Dark Pool Designs (continuous)
- Orderbook
- LOB
- all private
- Batch Auctions
- CoWswap
- private
- Hybrid
- orderbooks, Uniswap v4
- some dark, some lit
| Strategy | Pros | Cons | alpha |
|---|---|---|---|
| Discrete Quoting (Speedbump) - orderbook snapshots | accurate, easy, optimistic | - getting interval right is hard and inconsistent - privileged snapshotter needs to be trusted - lags & delays - potential for stat arbs | |
| Quote based on last fill - in darkpool - how late to reveal? - assume public settlement | easy, works, no leak | - inaccurate (outdated) - can be missing depth | this is better than vvv (no quotes) |
| No quotes - tradfi | easiest, battle tested for sophisticated actors, no leak | leaves Idaho Joe/retail users confused without quotes on frontend | |
| Quote from other venues - based on Binance or other DEXes | inaccurate | ||
| Increasing uncerntainty - add book noise | makes everything a stat arb | ||
| Stake for quotes - slash if misbehaving (TEEs/AVS) | - no consequences from slashing - KYC or reputation based | ||
| Lock for quotes - delayed withdrawal if no execution - pay in time | - implementation details for time constraints - not foolproof - potentially need KYC | ||
| Pay for quotes (basically Sentinel orders) - refund if you execute - could be managed in an auction | really good UX | - implementation details are complicated - worse spreads - potential for stat arb | |
| Smart orders | |||
| Set order sizes - tornado cash-like - quote at some price X | good UX | - how does it work? - leak A LOT of info - complicated to implement |