Private Transactions now controls Ethereum order flow – report

According to an August 20 report by Blocknative, private transactions dominate Ethereum's order flow as users seek to protect transactions from front-runners.

While private order flows still only comprise roughly 30% of Ether (ETH) transactions, they consume more than half of the gas used on the network, according to Blocknative. This will make a difference.”[n]ew centralization vectors are accessible only to authorized network participants as a private trading order flow,” the report states.

Private orders involve sending transactions directly to a validator, rather than to a public queue, in an arrangement known as a “dark pool”. Public transactions are at risk of being run over by automated trading “bots” that profit at the expense of users – a practice known as maximum leveraged value (MEV).

Related: What is MEV: A Beginner's Guide to Ethereum's Invisible Tax

“This is because users typically prefer to transfer transactions privately for the protection of MAV, especially when performing more complex – and gas-intensive – onchain operations such as swaps,” according to Blocknative. “These, in turn, consume more gas than non-MEV vehicles.”

According to Blocknative, private order flow is dominated by a few blockchain developers: Beaver, Titan, Rsync, and Flashbots, all of which have “shown significant increases in private order flow since March.” During this period, gas consumption for each of these block builders increased from 130% to 150%, the report said.

The growth of dark pools has negative effects on users participating in the public transaction queue, including more volatile and unpredictable gas prices, according to Blocknative.

“The visibility of gas payments to get onchain is reduced as most of the block space is consumed by privately sent transactions,” the report says.

“This means you're more likely to price your transaction too low and end up with a crowded transaction, or overprice your transaction to cause the transaction to come up in a chain,” the report added.

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