Renegade: A New On-Chain Dark Pool Based on MPC and ZKP

I. Introduction

Current DEXs are completely transparent, allowing anyone to see users' balances and transaction history. To meet the cryptocurrency investors' demand for transaction anonymity and privacy, Renegade is developing a new decentralized exchange (DEX) on-chain dark pool based on multi-party computation (MPC) and zero-knowledge proofs (ZKP). This aims to provide comprehensive transaction privacy for users, i.e., decentralized dark pool trading, with the goal of improving price execution in DeFi by preventing front-running, sandwich attacks, and statistical arbitrage.

II. The Need for Dark Pool Trading in the Crypto Market

Dark pool trading has long existed in traditional finance. In traditional exchanges, the information of large orders is detected or tracked by high-frequency trading (HFT) companies, which then rely on special order types or superior hardware/software to front-run positions ahead of large institutional/bank traders, resulting in losses for the latter. To protect large institutional traders from being "front-run" by HFT companies, dark pools have continued to develop, with dark pool trading accounting for nearly one-third of the total trading volume in the US stock market.

In dark pool trading, anonymous matching of large trades is conducted, operating opaquely without displaying bid and ask prices or the identities of the parties involved, keeping trading strategies and positions private and not disclosing executed trade details to the public, which is highly advantageous for institutional investors.

Advantages of Dark Pool Trading

1. Large investment institutions can reduce the impact of market sentiment and hide their intentions from the general public through dark pool trading.

2. Prices are optimized, and both buyers and sellers can obtain more satisfactory trading prices than in the public market (buyers buy at lower prices, sellers sell at higher prices).

3. Slippage does not occur; most dark pool trades are completed at predetermined prices, allowing traders to complete the entire transaction at the expected price.

Due to the above advantages of dark pools and the increasing proportion of institutional investors and high-net-worth crypto asset holders in the market, there is a growing demand for transaction anonymity and liquidity. To meet these needs, decentralized dark pool trading as a new protocol for large-scale crypto asset trading is expected to thrive. In fact, several centralized exchanges now offer fee-based dark pool trading tools to clients, and dark pool trading is an alternative path beyond aggregated trading and automated market making (AMM), providing a suitable venue for large institutional investors and improving exchange liquidity.

III. Renegade's MPC-ZKP Architecture

The core difference between Renegade and all other exchanges (centralized and decentralized) is that the state is maintained locally. Instead of balances and orders being maintained by a central server (e.g., Binance) or thousands of distributed servers (e.g., Uniswap), all Renegade states are maintained by individual traders.

When traders want to perform operations on their wallets (deposit tokens, settle matches, etc.), they must know their old wallet and new wallet and send three pieces of information to the smart contract:

1. Commitment to the new wallet.

2. Two "nullifiers" for their old wallet, used to prevent double-spending of the old wallet.

3. Zero-knowledge proof: the commitment is correctly calculated, the nullifiers are correctly calculated, the old commitment exists somewhere in the global Merkle tree, and the change from the old wallet to the new wallet is valid (e.g., the user did not arbitrarily increase their balance).

The smart contract maintains a global Merkle tree containing all previous commitments and a set of nullifiers for displaying previous wallet nullifiers.

By using the commit-reveal mechanism, the protocol allows complete wallet privacy (i.e., no information about the wallet is leaked on-chain), while maintaining complete state consistency and preventing double-spending attacks.

Fundamentally, Renegade is simply a p2p communication network composed of many independent relayers that continuously communicate and mutually execute MPC when new orders enter the system. Relayers never custody assets but are granted permission to view wallets to compute paired MPC.

Thus, by collaborating with SNARKs to implement this MPC-ZKP framework, the protocol creates a fully atomic (i.e., no party can exit after MPC execution) and completely private DEX, both before and after transactions.

For more detailed information, please refer to the complete Renegade whitepaper: Renegade Whitepaper

IV. Features of Renegade

In addition to avoiding counterparty risk in centralized exchanges and over-the-counter (OTC) trading desks, Renegade's dark pool trading service addresses many issues in the current DEX spot market, ultimately providing users with better prices and optimal execution:

1. Pre-trade privacy: Before a user's trade is matched, no one can see any details of the user's order. For large trades that have a significant impact on the market, Renegade can hide the user's order details (price, quantity, direction, etc.), and the user remains anonymous.

2. Post-trade privacy: After orders are executed, only the counterparty knows which assets were exchanged. This prevents third parties from tracking and replicating the user's trading strategy.

3. Minimal MEV: Since validators can only see zero-knowledge proofs of valid transactions, block producers cannot front-run, re-run, or sandwich your transactions.

By default, Renegade trades at the optimal mid-price calculated based on anonymous order book theory, without market makers conducting spread trading. However, Renegade can also selectively execute matched orders to achieve complete price discovery and better liquidity supply.

V. Potential Users of Renegade

Given the widespread information leakage issues in the current DeFi system, various types of traders can benefit from Renegade's price improvements:

1. Market makers: If one market maker is long on an asset while another is short on the same asset, the trading platform can anonymously offset these two positions, balancing positions without incurring the spread costs of public trading.

2. OTC takers: Takers can place orders directly in the dark pool at the mid-price without incurring OTC spread costs.

3. AMM takers: Traders transferring more than $5000 in a single transaction on a chain-based DEX often have a significant price impact and may suffer losses due to being sandwiched by MEV watchers. With Renegade, trades are always guaranteed to be executed at the mid-price.

4. Privacy-conscious crypto natives: Renegade maintains complete anonymity, meaning no third party can see detailed information about trading or payment history.

VI. Token and Project Progress of Renegade

The Renegade project currently has no token information and is in the internal test network. The public test network is scheduled to be released in the second quarter of 2023.

VII. Core Team

Christopher Bender: Founder of Renegade.

Studied pure mathematics and computer science at UC Berkeley. Involved in machine learning, Accel Scholars, and AI research at Berkeley. Previously worked at Nuro and Tesla Autopilot. Attempted to adjust political incentives by market-making on city assets: CityStocks. Linked a port of Tornado Cash to Solana, the first zero-knowledge application on the Solana network: Otter Cash. Email: chris@renegade.fi

Joseph Kraut: Founder of Renegade.

Studied computer science at UC Berkeley. Email: joey@renegade.fi

Development experience on multiple projects on Github: joeykraut's Github

VIII. Funding Information

Public information as of February 20, 2023, shows that Renegade announced the completion of a $3.4 million seed round of financing, led by Dragonfly Capital and former AngelList CEO Naval Ravikant, with participation from Balaji Srinivasan, Lily Liu, Tarun Chitra from Robot Ventures, Marc Bhargava from Tagomi, and Lev Livnev from Symbolic Capital Partners.

IX. Related Links

Official Website: Renegade

Twitter: Renegade Twitter

Substack: Renegade Substack

Github: Renegade Github

Whitepaper: Renegade Whitepaper

Discord: Renegade Discord

Email: chris@renegade.fi

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