DeFi opportunities on high-performance chains

Author: Derek Walkush

Due to the growth of L2, the Ethereum ecosystem is still the battlefield chosen by most DeFi. However, the recent success of Solana, Aptos, and other high-performance chains suggests that they will play an important role in the growth of DeFi.

However, the differences between high-performance chains and Ethereum may be something that experienced DeFi builders in the Ethereum ecosystem cannot fully understand.

Below, I will discuss what I consider the four most important technical differences relevant to DeFi projects. Builders who understand these characteristics of high-performance chains will be able to seize opportunities that may not be possible on the familiar Ethereum playground.

1: Throughput

A defining characteristic of high-performance chains is extremely high TPS. This technical improvement unlocks a range of DeFi applications that are not possible on the Ethereum mainnet. On the current Ethereum L2, achieving fast confirmations is extremely difficult to achieve because of not only the proof generation (zk) and fraud proof dispute (op) times, but also the 12 seconds of final confirmation on the mainnet. Therefore, for now, high-performance chains are the only viable solution for a fully on-chain order book. Dynamic parallelism through technologies like Block-STM gives newer CLOBs like Econia the ability to minimize conflicts and maximize throughput.

In order to be "fully on-chain", the order book must be able to support not only transaction settlement (asset transfers between wallets), but also the matching engine (transaction where the bidder bids). The latter is harder to host on-chain because the order book has to absorb a lot of junk. While order books require better liquidity and throughput compared to AMMs, they do not require passive LPs, so it provides a more capital efficient market structure for trading.

There is another opportunity for new projects: while spot DEXs price assets on the order book, DEXs with synthetic derivatives often require external infrastructure to provide The price is the oracle. Although high-performance oracles are emerging, many traditional oracles cannot meet the low-latency needs of high-performance chains (sub-1 second confirmation times).

2: Gas fee

Lower The gas fees, coupled with high throughput and low latency, have many advantages for DeFi application builders on high-performance chains, especially DEX aggregators.

Aggregators obtain the best prices from various on-chain (and even off-chain) liquidity sources. But due to high gas and higher latency on the Ethereum mainnet, prices can often only be retrieved from a single DEX or off-chain source.

However, on a high-performance chain, the advantages of low fees and low latency allow aggregators to find the best price for assets in different liquidity venues. In other words, an aggregator can exchange tokens on one DEX, but if another path offers a better price, it can choose to exchange it again on another DEX, or via a more complex path. As a result, aggregator pricing is more competitive on high-performance chains than on the Ethereum mainnet.

Solana’s story is illustrative. Jupiter is Solana’s leading aggregator, controlling approximately 80% of deal flow (after filtering out bots). This is in stark contrast to the Ethereum mainnet. On the Ethereum mainnet, the bulk of transaction flow still goes through DEX frontends, with multiple aggregators controlling ~40-50% of order flow and no single frontend controlling more than 30-40%. This means that liquidity and order flow are naturally decoupled on high-performance chains, and aggregators will always get the best price for an exchange across multiple venues, which introduces a natural incentive not to build your own liquidity (Because it may not offer the best price). Liquidity sources (e.g., AMMs, order books) can attempt to build their own proprietary order flow, but they may not be able to compete on price with leading aggregators.

Additionally, advances in asset bridge infrastructure and intent-based protocols enable the emergence of a higher level: cross-chain aggregators for high-performance chains. As activity is increasingly distributed across different L1s and architectures completely different from the Ethereum ecosystem, a separate cross-chain aggregator could be very promising.

Therefore, high-performance on-chain aggregators are also a huge opportunity.

3: Verifier selection

To support extremely high TPS, many high-performance chains compromise decentralization in their consensus protocols. They can achieve higher scalability through DPoS, validator clusters, etc., effectively increasing transaction propagation speed by not broadcasting to the entire large node network.

As part of their consensus protocol, many high-performance chains use a deterministic leader schedule, a predefined set of validators responsible for the Transactions in blocks are sorted. Therefore, transaction ordering is extremely dependent on validators being selected as leaders because of their exclusive and established position. This is in stark contrast to Ethereum, where validators are pseudo-randomly selected.

Leaders or representatives are selected in various ways, but the result of a deterministic leader schedule is that some validators can build more blocks and earn Bigger rewards, which are self-reinforcing, often result in more stake for these validators. Additionally, high-performance chains typically have higher hardware requirements, which means higher barriers to entry for validators (in the form of upfront costs), given the higher requirements for state access (to support high TPS, parallelization, etc.).

This dynamic creates a range of advantages for widespread staking, especially for liquid staking tokens (although validator selection on Ethereum is very important, But it usually doesn’t have much impact on the overall staking yield). Essentially, some Liquidity Tokens (LSTs) that gain the best validators can gain structural advantages through higher yields. There is also an opportunity for high-performance chains to also try a shared security/re-staking layer similar to Ethereum, allowing projects with access to the best validators to further increase production through re-staking.

4: Building blocks

Blocks The building process varies from chain to chain, but broadly speaking, there are very large structural differences between high-performance chains and the Ethereum mainnet, which have a large impact on MEV.

Using a booking leader schedule or delegation to validate transactions can create challenges in packaging transactions. The first-in, first-out (FIFO) model sometimes requires the searcher to spam transactions to the chain in an attempt to include them first, rather than packing ordered transactions in an orderly manner. Different gas fee market designs (especially Solana's native fee market) also mean that priority fees don't always increase a transaction's chances of being included. These architectures make it challenging to execute MEV strategies such as sandwich attacks.

Additionally, some chains (especially Solana) do not have a public memory pool, which makes it more difficult for external MEV searchers to retrieve transactions and sort them to execute MEV strategies . Pipeline streaming and parallel blockchains like Aptos can defeat sandwich attacks by randomly reordering transactions before executing processing stages in parallel.

Therefore, MEV opportunities on high-performance chains are structurally different. Slight differences in blockchain architecture often have a significant impact on MEV. The Jito block building auction on Solana, for example, remains a huge opportunity for builders. These architectures create opportunities for new MEV infrastructure, but the topic is still under research and is not as well understood as MEV on the Ethereum mainnet.

Write at the end

Most of the height The performance chain ecosystem is still in its very early stages, and often roughly follows the development path of Ethereum DeFi. However, the slight divergences mentioned above (and probably many others I haven’t discussed) could significantly impact the trajectory of certain industries and create huge opportunities for DeFi builders.