[Resource Topic] 2023/1461: Do Private Transaction Pools Mitigate Frontrunning Risk?

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Do Private Transaction Pools Mitigate Frontrunning Risk?

Authors: Agostino Capponi, Ruizhe Jia, Ye Wang


Blockchain users who submit transactions through private pools are guaranteed pre-trade privacy but face execution risk. We argue that private pools serve the intended purpose of eliminating frontrunning risk, only if such risk is high. Otherwise, some validators may decide to avoid monitoring private pools to preserve rents extracted from frontrunning bots. Private pools intensify the execution arms race for bots, thus decreasing their payoffs {and increasing validators’ rents}. The private pool option reduces blockspace allocative inefficiencies and raises aggregate welfare.

ePrint: https://eprint.iacr.org/2023/1461

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