The development lab Webisoft is joining forces with the Midnight Foundation to build an institutional-grade dark pool trading platform. This project will use Midnight’s privacy-enhancing technology to create a secure, fully anonymous decentralized exchange (DEX).
The partnership addresses a foundational challenge for institutional finance in decentralized ecosystems, where the need for confidentiality conflicts with the inherent transparency of public blockchains.
The problem of public markets
On a conventional decentralized exchange, all buy and sell orders are visible to participants. This transparency becomes a significant disadvantage for institutions executing large trades. A very large buy or sell order signals a major shift in supply or demand, which can cause other traders to react and drive the asset's price in an unfavorable direction before the trade is complete. This is a significant barrier to institutional adoption because it increases costs and reduces execution efficiency.
A dark pool can solve this problem by adding privacy to the market. It will allow participants to execute large orders without revealing their intentions to the broader market. A matching engine finds corresponding buy or sell orders privately, and trades are executed at a price derived from public markets. This model preserves confidentiality until after the transaction is complete, ensuring fair execution without market disruption.
The collaboration between Webisoft and Midnight will bring this institutional trading model to a decentralized Web3 environment. The project will create a full-stack dark pool system on the Midnight network, integrating its zero-knowledge (ZK) proof infrastructure to ensure transaction privacy and its Zswap protocol for atomic settlement. The platform will include a secure matching engine, multi-party computation (MPC) infrastructure, and custom wallet support through a MetaMask Snap.
This approach to DeFi builds on the concept of rational privacy, which applies programmable privacy and selective disclosure to balance confidentiality with regulatory needs. As Midnight Foundation President Fahmi Syed explained at Money 20/20 earlier this year, “Privacy is a fundamental human and digital right, yet in our current systems, users give everything away just to participate.”
Rational privacy addresses this by using zero-knowledge (ZK) proofs, which allow firms to verify information without ever seeing the underlying data. In the dark pool model, this technology will enable buyers and sellers to be matched securely without revealing their positions to the wider market. This functionality will address a major obstacle for institutional adoption. As Syed pointed out, “Traditional blockchains make every transaction permanent and public. That’s a barrier to real-world adoption.”
Project focus and technical milestones
The project is structured to deliver a series of open-source, privacy-preserving components that developers can integrate into their own applications. The roadmap is organized by the release of key functionalities:
- System architecture and privacy specifications: a complete architectural design and technical specifications for building applications with private data flows on Midnight. This includes detailed guides for integrating the Zswap protocol.
- Confidential asset and order management: a secure wallet implementation for managing encrypted balances and confidential order books. Developers can use these components to build applications that require private user asset management.
- Private matching engine with MPC: a standalone, privacy-preserving matching engine. This component uses multi-party computation (MPC) for secret sharing and private price discovery, allowing developers to build sophisticated trading or matching applications without revealing user data.
- Atomic settlement layer: a trustless atomic settlement system built on Zswap. It provides a modular tool for developers needing reliable, private, on-chain trade execution and settlement.
- Validation and security reports: upon completion, all components will be audited and accompanied by comprehensive performance and security testing reports, giving developers confidence in their use.
All tools and functionalities will be released under an Apache 2.0 license for broad use across the ecosystem.
Expanding the toolkit for private finance
This collaboration will produce a functional, institutional-grade dark pool DEX native to Midnight and demonstrates the network's capacity to support complex financial applications. Midnight’s use of TypeScript-based language, Compact, abstracts away cryptographic complexity, making it easier for developers to build privacy-preserving applications.
The project reinforces the idea that blockchains do not need to be strictly public or private. As Syed explained at Money 20/20, “Midnight enables a spectrum—where privacy is programmable, rational, and aligned with existing regulatory expectations." By creating open-source tooling for wallets, MPC, and smart contracts, the project will help attract more developers to build advanced, privacy-focused applications.
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