<\/p>\n
Flashbots product lead and steward Robert Miller describes a better decentralized exchange experience, enabled by mechanisms like intents and order flow auctions.\u00a0<\/p>\n
A user might simply sign their intent to trade USDC for [ether], for example, leaving the system to determine the best way to make it happen. \u201cThere\u2019s many ways to do this,\u201d Miller says. \u201cUsually, they involve some form of competition among many different parties to give the users the best execution possible.\u201d<\/p>\n
This is where order flow auctions, or OFAs, come into play. On the Bell Curve podcast (Spotify<\/a>\/Apple<\/a>), Uniswap<\/a> Labs research scientist Xin Wan explains that an array of orders are constantly flowing into decentralized exchange or DEX<\/a> markets to be processed, mostly consisting of swaps.\u00a0\u00a0<\/p>\n Participants \u201cassign value to these transactions,\u201d he explains, and \u201cpay for the opportunity to interact with these orders.\u201d<\/p>\n \u201cThe order flow auction is just the auction for them to bid on the opportunity to interact.\u201d<\/p>\n Paradigm general partner Dan Robinson adds that ideally, the proceeds of the auction go to the user who initially created the transaction or intent. In some cases, proceeds might also be sent to the interface that originated the transaction.\u00a0<\/p>\n Ultimately, the goal is to return the maximal extractable value<\/a>, or MEV<\/a>, to users rather than allowing it to be siphoned away by parasitic actors in the system.\u00a0<\/p>\n \u201cIn the last year,\u201d Miller says, \u201cwe\u2019ve seen a huge explosion of different types of order flow auctions.\u201d<\/p>\n \u201cThey\u2019re working with individual Ethereum<\/a> transactions, but also order flow auctions work with intents, like Uniswap X.\u201d\u00a0<\/p>\n With intent-based swapping systems like Uniswap X<\/a>, many complexities of trading are abstracted away from the users, simplifying the experience and ideally, lowering transaction costs. Users simply sign their intent and let the system take care of all the complexities.<\/p>\n Flashbots<\/a> has succeeded in helping mitigate MEV with order flow auctions that pay the value back to users, Miller says, but he is concerned about the potential centralizing effects of the off-chain elements that run the auctions.<\/p>\n \u201cOur answer to this new form of centralization in the market is Suave<\/a>,\u201d he says. Developers can use Suave to create order flow auctions and other types of MEV infrastructure as smart contracts on a decentralized blockchain, with built-in credibility and privacy, according to Miller.<\/p>\n In today\u2019s decentralized exchange market, Miller says the majority of MEV comes from swaps. \u201cTo that end,\u201d he says, \u201can OFA that addresses swaps is going to address the majority of the market space.\u201d<\/p>\n But it\u2019s not immediately clear to Miller that this will continue to be the case in the future. \u201cMEV finds a way \u2014 and it\u2019s oftentimes popping up in unexpected places,\u201d he says. He mentions that a lot of MEV takes place on the Web3 social app, Friend.tech<\/a>, for example, which \u201clook like swaps\u201d but are conceptualized differently.\u00a0<\/p>\n Read more:<\/strong> Web3 Watch: SocialFi apps secure funding despite investment lull<\/a><\/p>\n \u201cSo who knows where it will come in the future,\u201d he says, adding, \u201cmaybe a gaming use case, maybe something else. But today, definitely, the majority of MEV is coming from swaps.\u201d<\/p>\n Wan notes that swaps are, of course, Uniswap\u2019s specialty. \u201cThat\u2019s what we are good at,\u201d he says, \u201cand Uniswap, for its history, has always almost exclusively done swaps.\u201d<\/p>\n \u201cWe never tried to branch out into lending or other DeFi<\/a> stuff. No stablecoin<\/a>, no anything else. Just swaps.\u201d\u00a0<\/p>\n \u201cThere\u2019s so many MEV and other execution related problems<\/a> with the way swaps happen on-chain,\u201d he says. \u201cUniswap X is just a nice way to improve the user experience.\u201d<\/p>\n \u201cMaybe in the future, there\u2019s a ton more activities \u2014 and I would love to see that,\u201d he says. \u201cRight now, we\u2019re still taking a somewhat more specialized approach.\u201d<\/p>\n Don\u2019t miss the next big story \u2013 join our\u00a0free daily newsletter<\/a>.<\/strong><\/p>\nMEV finds a way<\/h2>\n
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