Blocknative: Private transactions are dominating Ethereum order flow

Author: Alex O’Donnell, CoinTelegraph; Compiler: Tao Zhu, Golden Finance

A report from Blocknative on August 20 showed that private transactions now dominate Ethereum’s order flow as users seek to protect their transactions from front-runners.

Blocknative said that although private order flow still only accounts for about 30% of Ethereum transactions, it consumes more than half of the gas on the network.The report said that this shift has created “new centralization vectors because private trading order flow is only accessible to permissioned network participants.”

Private orders involve sending transactions directly to validators, an arrangement called a “dark pool”, rather than entering a public queue. Public transactions can be front-runners by automated trading “bots” that profit at the expense of users — a practice known as Maximum Extractable Value (MEV).

Private orders consume more than 50% of the gas on Ethereum. Source: Blocknative

“To protect MEV, users often choose to transmit transactions privately, especially when conducting more complex (and therefore gas-intensive) on-chain operations such as swaps,” Blocknative said. “In turn, these transactions consume more gas per transaction than non-MEV transactions.”

Private order flow is dominated by a handful of block builders, Beaver, Titan, Rsync, and Flashbots, all of which have “shown significant growth in private order flow since March,” according to Blocknative. Gas consumption by these block builders grew between 130% and 150% during this period, the report said.

According to Blocknative, the growth of dark pools has had negative impacts on users participating in public trading queues, including more volatile and unpredictable gas prices.

“When a large portion of block space is occupied by transactions sent privately, the observability of on-chain gas fees decreases,” the report said.

“This means that there is an increased likelihood that you will either underprice your transaction and end up getting stuck, or that you will overprice your transaction to ensure it gets on-chain,” the report added.