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BlackSea - Cross chain Dark Pool Orderbook

BlackSea is an orderbook matching engine that keeps all pending and executed orders private. Founders, Whales and Institutional Investors can finally trade tokens onchain without being surveilled.

Problem Statement

Revealing an intention to trade can be a dangerous thing in financial markets, sophisticated market players (in this case, statistical arbitrage MEV bots) can extract value from that information in what is known as signal MEV.

Trading in DeFi through DEXes does not eliminate the problem. DEXes cause slippage, especially when executing large orders against modest liquidity pools. Big trades constantly suffer extreme slippage risks when trading large positions.

The problem only gets worse when the trader is one of the main holders of the token (think of founders, VCs and early investors). In those cases the public disclosure of them selling/buying tokens changes the market perceptions (devs selling tends to negativelly affect price as it shows lack of confidence in the token's future, e.g.).

Solution

We have built a Private Orderbook smart contract on Oasis Sapphire. By leveraging the privacy preserving properties of Oasis the contract is able to receive, keep and process encrypted limit orders from different traders, never sharing the information with anyone. Whenever 2 limit orders match, the contract executes them without anyone but the parties involved learning about the trade.

The Orderbook is able to process assets from any blockchain by using cross chain message passing to lock and release assets, traders don't need to have tokens in Oasis Sapphire to be able to use it.

Technical Architecture

The Orderbook is composed of 2 on chain services:

  • Orderbook engine
  • Settlement engine

Orderbook engine is responsible for receiving, processing, matching and cancelling limit orders. It keeps all pending and past orders private, whenever a new order comes in it tries to execute it against existing liquidity, performing matches.

The current version users RedBlackTrees and LinkedLists to allow log(n) best price searches, order insertion and deletion, being hyper efficient in gas.

Settlement engine is responsible for escrowing assets upon the creation of new orders and releasing assets whenever trades are matched or cancelled.

The current version uses IllumineX's confidential ERC20 tokens to guarantee anonymous escrow and release of tokens. They can be used to wrap assets across multiple chains through the Celar message passing bridge.

application flow

Testing the Application

The app is live at the Oasis Sapphire Testnet at the following addresses:

Contract Address
Token FakeETH 0x92079Bb2A3791c5e908e41C5c3Da79038A3A2B1D
Token BS 0xF5F0225C9025A793f97bA56739aF2DFB3F609d23
BlackSea Core 0x73E2A8F54CE305A82a822A322E8afbF1d90A3aF3

You can test it by running the following steps:

  1. Create an Ethereum compatible keypair, add Sapphire testnet $ROSA to it using the faucet (remember to select Sapphire)
  2. Open your terminal and run npm install to install all project dependencies
  3. Load your private key in your terminal using export PRIVATE_KEY=[your_key](Remember to only use dummy test accounts that don't hold real funds in any blockchain)
  4. You can now check your balance of test tokens by running npm run token-check
  5. Mint test tokens by running npm run token-mint <amount-to-mint>
  6. Place secret orders in the orderbook by running npm run order-send <token> <price> <size>
  7. You can see all your pending orders by running npm run order-check
  8. To play around and see trades happening you can spin up a second terminal, with a different private key and experiment trading between them

More on creating orders

Orders are created as limit orders in the protocol. That means you as a trader specify a price and it is always going to execute with the specified price or better. Your order is only going to be executed if there is another order in the opposite direction. Parameters:

  • token - token that the trader wants to sell
  • price - price to sell token for
  • size - how much of the token to sell

The price of the limit order is determined inside the contract by diving quantityToBuy/quantityToSell

Future Features

BlackSea was built as a hackathon project in ETHDam 2024 to showcase the potential of privacy preserving applications to improve the DeFi ecosystem. It is, however, still a proof of concept.

There are 3 important features to be improved to bring the application to production:

  • Bridgeless settlement - we intend to build an escrowing technology that leverages Oasis' native keypair and signature generation precompiles to allow BlackSea to process fund settlements in the native chain, without having to bridge them over to Sapphire
  • Side channel resistancy - we intend to conduct a full audit with TEE experts to patch any possible side channel data leakage, guaranteeing full information privacy for trades
  • Cancel order feature - current implementation is missing the cancelOrder function, we need to redesign the data structure to allow for O(log(n)) cancellations. This is an easy feature to add that we didn't have time to finish during the hackathon