Crypto Platform Launches ‘Dark Pool’ Citing Growing Institutional Interest

Enclave Markets to allow crypto traders to make block trades off-chain to minimize market impact


Source: DALL·E


key takeaways

  • Asset managers, hedge funds and systematic trading firms are among those demanding this type of product, Enclave Markets CEO says
  • Hidden Road Partners, LedgerPrime, Republic Crypto, Fir Tree Partners, Scrypt, FBG Capital and Blizzard Fund are among those testing the product

Crypto marketplace Enclave Markets is preparing to allow its whitelisted users to trade blocks of digital assets privately, echoing dark pool trading.

The platform’s Enclave Cross, still in beta, allows crypto traders to make block trades off-chain. Once the traders move their assets off-chain, Enclave’s technology matches traders with interested counterparties without revealing wallet addresses. 

All Enclave Cross trades are executed at the market price. Executing large orders on existing trading platforms can lead to material market impact, according to Enclave CEO David Wells

A hybrid centralized, decentralized model

The product was inspired by dark pools, which have long been offered in traditional markets.

Crypto dark pools are nothing new, either, with Kraken launching a suite of dark pools in 2015. SFOX launched a crypto dark pool in 2020, and a number of crypto prime brokerages also offer similar services.

But Wells said no current competitors offer as much anonymity.

“In other centralized dark pools, users must trust the exchange operator to be a good actor,” he said. “Our model is trustless and decentralized using novel technology to ensure privacy, security and fair trading practices.”

Centralized models can suffer from information leakage, undermining their privacy benefits, but Enclave hopes to address that with an adjudicator approval process similar to a smart contract. 

Barclays and Credit Suisse paid roughly $150 million in fines in 2016 after being charged with dark pool violations.

The institutions using Enclave Cross must pass know-your-customer (KYC) requirements. The crypto firm also does sanctions screening and anti-money laundering (AML) monitoring.  

Institutional push

Wells said asset managers, hedge funds and systematic trading firms are among those demanding this type of product. 

“If you look at equities, like 60% plus of volume is traded by institutions, not by retail,” he said. “I think that is the direction that crypto is moving in general.”

Trading firms and prime brokers, including Hidden Road Partners, LedgerPrime, Republic Crypto, Fir Tree Partners, Scrypt, FBG Capital and Blizzard Fund, have begun testing the service. Enclave Cross currently supports the trading of avalanche (AVAX), ether (ETH), bitcoin (BTC) and USD Coin (USDC).

The company, which was incubated by Avalanche developer Ava Labs, seeks to add more institutions and assets in the coming months.

Wells got into the crypto space in 2017 when he began working for blockchain infrastructure company Paxos. He then worked as a vice president of strategy and product development for two years at Two Sigma before becoming CEO of Enclave Markets in January.  

Because of his background, Wells said, he is familiar with the infrastructure needs for institutions, as well as the types of liquidity and trading tools they seek out.  

The executive added that Enclave Markets could look to offer a spot exchange in the future, as well as derivatives and swaps.  

“I think the real growth opportunity over the next five years is to build products that specifically suit the needs of those larger, traditional asset managers that the large banks and the large traditional prime brokers won’t be able to serve just because they’re slow-moving and risk averse,” Wells said.

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