Privacy, sometimes, really can dig a hole for yourself. The obfuscated order book of @Dusk —intended to conceal trading intentions, to prevent being front-run or watched—accidentally also blinds market makers. This counterintuitive part is worth taking apart.
Market makers quote bid and ask by watching the visible order book. The more transparent the book is, the more willing they are to keep the spread tight. But once it becomes unclear, they assume the other side is a knowledgeable trader and immediately widen the spread and tighten their quotes for self-protection.
Dark pools hide “who is placing orders and how large they are,” but prices still need to be posted near the reference price in the lit market—within the NBBO, so at least there’s an anchor for both sides. Regulators aren’t naïve either: under MiFID II, dark pools face dual caps of 4%/8% on quantity—if a single dark pool’s execution share on a given stock exceeds 4%, or if the combined dark-pool executions across the entire EU exceeds 8%, trading in dark pools must be paused and quotes move back to the lit market.
The problem with $DUSK is that it advertises “an obfuscated order book,” hiding “price and intent.” If it hides the price anchor as well, then market makers don’t even have a reference price—they can only carry risk with the most conservative quotes. Liquidity depth drops, spreads widen, and high-frequency traders and market makers may simply withdraw. And at that point, the large depth liquidity that institutions want is ironically driven away by its own privacy design.
I do admit privacy isn’t purely bad. In transparent DeFi, as soon as big orders show up, bots spot them, and copy-trading follows—adverse selection does push market makers out. But if it can achieve “hide identity and quantity, while preserving the reference price,” then privacy can actually help market makers dare to take on more volume. #dusk
Still, getting that “just-right privacy” is extremely hard. Too little isn’t useful; too much kills liquidity. The materials only say it “obfuscates the order book to prevent manipulation,” but they don’t explain whether it hides identity or price, whether a reference price is retained, and who guarantees the spread and depth. Without those details landing, “privacy in exchange for liquidity” is just a pretty phrase.
Treat “privacy” and “liquidity” as a seesaw—don’t just focus on the advantages of privacy. DYOR: if an obfuscated order book also blinds the market maker, then the depth liquidity that institutions want—did it get pulled out, or did it get hidden away?
Market makers quote bid and ask by watching the visible order book. The more transparent the book is, the more willing they are to keep the spread tight. But once it becomes unclear, they assume the other side is a knowledgeable trader and immediately widen the spread and tighten their quotes for self-protection.
Dark pools hide “who is placing orders and how large they are,” but prices still need to be posted near the reference price in the lit market—within the NBBO, so at least there’s an anchor for both sides. Regulators aren’t naïve either: under MiFID II, dark pools face dual caps of 4%/8% on quantity—if a single dark pool’s execution share on a given stock exceeds 4%, or if the combined dark-pool executions across the entire EU exceeds 8%, trading in dark pools must be paused and quotes move back to the lit market.
The problem with $DUSK is that it advertises “an obfuscated order book,” hiding “price and intent.” If it hides the price anchor as well, then market makers don’t even have a reference price—they can only carry risk with the most conservative quotes. Liquidity depth drops, spreads widen, and high-frequency traders and market makers may simply withdraw. And at that point, the large depth liquidity that institutions want is ironically driven away by its own privacy design.
I do admit privacy isn’t purely bad. In transparent DeFi, as soon as big orders show up, bots spot them, and copy-trading follows—adverse selection does push market makers out. But if it can achieve “hide identity and quantity, while preserving the reference price,” then privacy can actually help market makers dare to take on more volume. #dusk
Still, getting that “just-right privacy” is extremely hard. Too little isn’t useful; too much kills liquidity. The materials only say it “obfuscates the order book to prevent manipulation,” but they don’t explain whether it hides identity or price, whether a reference price is retained, and who guarantees the spread and depth. Without those details landing, “privacy in exchange for liquidity” is just a pretty phrase.
Treat “privacy” and “liquidity” as a seesaw—don’t just focus on the advantages of privacy. DYOR: if an obfuscated order book also blinds the market maker, then the depth liquidity that institutions want—did it get pulled out, or did it get hidden away?