Ethereum’s order flow has been reportedly dominated by private transactions according to a Blocknative analysis. Users are routing transactions privately to avoid front-running bots. Private transactions only account for approximately 30% of all transactions on the Ethereum blockchain but consume more than half of all gas fees on the network.
The Ethereum ecosystem has seen a significant change in its transactions and gas fee ecosystem due to dark pool transaction dominance on the network. Private transactions executed via dark pools by a growing number of sophisticated Ethereum users have steadily increased since March.
Ethereum users avoid front-running bots by routing transactions privately
According to an analysis compiled by Blocknative, users are routing transactions privately to avoid front-running bots. The fast-moving frontrunner bots take advantage of the queuing trades pending processing by siphoning profits from trading margins through a process known as maximum extractable value (MEV).
Private transactions bypass these bots since they are sent directly to block proposers or validators for approval in a dark pool agreement. The dark pools facilitate transactions for validators instead of queuing on public mempools, where the bots take advantage of their trading margins.
Privately routed transactions account for approximately 30% of all transactions executed on the network. However, the Blocknative report indicates that these transactions account for more than half of the total gas fee usage on the network.
“Users typically choose to transmit transactions privately for MEV protection, particularly when conducting more complex – and hence gas-intensive – on-chain actions such as swaps. These, in turn, consume more gas per transaction than non-MEV transactions.”
– Blocknative report
The report highlighted that a handful of blockbuilders, like Titan, Beaver, Flashbots, and Rsync, dominate the network’s private flow compared to other builders. Other builders have grown their private order flow moderately by 70% to about 2.5MM from a low of 1.5MM. However, private order flow from the top builders has grown significantly since the Dencun hard fork in March.
Flashbots recorded the least increase in private gas on the top builders’ list after a 130% increase from 3MM to 7MM. Titan’s private gas increased from 3.5MM to 8.5MM, representing a 140% rise. Rsync’s private gas also grew by 140% from 2.5MM to 6MM. Beaver led the pack with a 150% increase from 3MM to 7.5MM.
Dark pool dominance creates centralization concerns
Blocknative highlighted in the report that the network’s upsurge of dark pool usage negatively affects the transactions queuing on public mempools by causing unpredictable and highly volatile gas fees. Notably, the phenomenon reveals centralization concerns since permission network participants only access privately routed transactions.
The phenomenon also causes reduced observability in the fees to get on-chain since block spaces are overwhelmed by privately routed transactions, according to the report.
According to Blocknative, the consequence of reduced gas fee observability is volatile transaction fees. Users may find themselves pricing their transactions so low that the transaction ends up being stuck or pricing their transactions too high to guarantee the transaction has landed on-chain.
