DeFi Has a Front-Running Problem. Sparkpool’s Potential Fix Is Launching This Month

DeFi Has a Front-Running Problem. Sparkpool’s Potential Fix Is Launching This MonthDeFi Has a Front-Running Problem. Sparkpool’s Potential Fix Is Launching This Month

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Ethereum mining pool Sparkpool will launch its new mining network, Taichi Network, complete with a “private transaction” feature in October, CoinDesk confirmed with Sparkpool co-founder Xin Xu.” data-reactid=”19″>Ethereum mining pool Sparkpool will launch its new mining network, Taichi Network, complete with a “private transaction” feature in October, CoinDesk confirmed with Sparkpool co-founder Xin Xu.

The network “will gradually go online” this month in what could be one solution to decentralized finance’s (DeFi) long-standing problem with front running, the practice of trading based on information about future trades contained in a blockchain’s transaction queue in cryptocurrency markets.

Taichi’s features are “not designed for selfish usage” but instead for the “public good” of the Ethereum ecosystem, Xu told CoinDesk in an email. 

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Related: First Mover: Nine (Bullish) Bitcoin Predictions for Final Months of (Awful) 2020” data-reactid=”22″>Related: First Mover: Nine (Bullish) Bitcoin Predictions for Final Months of (Awful) 2020

“We will offer Taichi Network’s features as infrastructure to the Ethereum [ecosystem], and we will see how the reaction works out then,” he said. Think of it as a privacy shield meant to level the playing field for all traders.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Sparkpool currently makes up 23% of Ethereum hashing power, according to Etherscan.” data-reactid=”24″>Sparkpool currently makes up 23% of Ethereum hashing power, according to Etherscan.

Ethereum’s dark forest

Ethereum’s transaction queue – called a  mempool – is often alluded to as a “dark forest” due to the predatory nature of arbitrage bots spying on transactions. 

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="First coined by venture capital firm Paradigm’s Dan Robinson, the “dark forest” metaphor describes bots lurking in a blockchain’s mempool to copy and execute profitable trades before the original executes.” data-reactid=”27″>First coined by venture capital firm Paradigm’s Dan Robinson, the “dark forest” metaphor describes bots lurking in a blockchain’s mempool to copy and execute profitable trades before the original executes.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Related: Record $166M Ethereum Fees Last Month Were 6 Times Bigger Than Bitcoin’s” data-reactid=”28″>Related: Record $166M Ethereum Fees Last Month Were 6 Times Bigger Than Bitcoin’s

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Bot arbitrage has long troubled Ethereum, most notably described in a 2019 Cornell University paper entitled “Flash Boys 2.0.”” data-reactid=”29″>Bot arbitrage has long troubled Ethereum, most notably described in a 2019 Cornell University paper entitled “Flash Boys 2.0.”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Profits earned by arbitrage bots skyrocketed over the summer months with an average of 50-100 ether (ETH) earned per day in May, according to estimates shared with CoinDesk by one arbitrage trading firm that requested anonymity. These profits climbed as high as 2,000-3,000 ETH per day at the height of the DeFi mania in early September.” data-reactid=”30″>Profits earned by arbitrage bots skyrocketed over the summer months with an average of 50-100 ether (ETH) earned per day in May, according to estimates shared with CoinDesk by one arbitrage trading firm that requested anonymity. These profits climbed as high as 2,000-3,000 ETH per day at the height of the DeFi mania in early September.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more: DeFi Traders Are Gaming Ethereum for Higher Profits, Researchers Say” data-reactid=”31″>Read more: DeFi Traders Are Gaming Ethereum for Higher Profits, Researchers Say

Private transaction networks like Taichi can cut a path through the trees, however. The mining party, in this case Sparkpool, opts out of broadcasting the chosen transaction destined for its block to the rest of the network. By not communicating to other mempool lurkers, the miner’s transaction gains a higher degree of safety from hungry bots.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For example, Sparkpool’s latest innovation enabled white-hat hacker Samczun to recently save 25,000 ether worth $9.6 million from broken decentralized finance (DeFi) project Lien Finance, according to a self-published account.” data-reactid=”33″>For example, Sparkpool’s latest innovation enabled white-hat hacker Samczun to recently save 25,000 ether worth $9.6 million from broken decentralized finance (DeFi) project Lien Finance, according to a self-published account.

On the other hand, you are entrusting your transaction entirely to Sparkpool, meaning the mining giant could front run you itself more easily.

Xu said disrupting the current front-running issues plaguing DeFi transactions “is definitely a direction worth exploring” with Taichi.

Taichi’s early days

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Certain aspects of Taichi Network are public, including a general domain registered in July 2020, according to WHOIS. The website remains under construction, but describes Taichi as a “viable Proof-of-Stake (mPoS) Ethereum sidechain” complete with relayers and smart contract capabilities.” data-reactid=”37″>Certain aspects of Taichi Network are public, including a general domain registered in July 2020, according to WHOIS. The website remains under construction, but describes Taichi as a “viable Proof-of-Stake (mPoS) Ethereum sidechain” complete with relayers and smart contract capabilities.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Relayers broadcast transactions faster than regular settlements on blockchains by constructing pathways between major nodes. Both Bitcoin and Ethereum have their own relayer networks, such as FIBRE and BloXroute.” data-reactid=”38″>Relayers broadcast transactions faster than regular settlements on blockchains by constructing pathways between major nodes. Both Bitcoin and Ethereum have their own relayer networks, such as FIBRE and BloXroute.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more: Marlin Releases Open-Source ‘Layer 0’ Transaction Relayer for Ethereum” data-reactid=”39″>Read more: Marlin Releases Open-Source ‘Layer 0’ Transaction Relayer for Ethereum

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Sparkpool data website GasNow also includes information on Taichi, describing the network as “greatly improving the efficiency of transactions broadcast” by “directly pushing received transactions into a mempool of mining pools.”” data-reactid=”40″>Sparkpool data website GasNow also includes information on Taichi, describing the network as “greatly improving the efficiency of transactions broadcast” by “directly pushing received transactions into a mempool of mining pools.”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="CoinDesk’s invest: ethereum economy is a fully virtual event Oct. 14 exploring the ramifications for investors of the sweeping changes underway within the Ethereum ecosystem. Learn more.” data-reactid=”41″>CoinDesk’s invest: ethereum economy is a fully virtual event Oct. 14 exploring the ramifications for investors of the sweeping changes underway within the Ethereum ecosystem. Learn more.

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