- According to a new study.
- This trading was very concentrated, with four wallets representing half of the volume recorded.
- Onchain’s subtleties of arbitration could lead to a greater risk of censorship, according to the authors.
A version of this article appeared in our The decentralized Newsletter on June 24. Register here.
The technology distributed and without authorization will win a remarkable victory if decentralized financial applications become the default location for actions, currencies, derivatives and cryptographic assets.
But this victory will also threaten the distributed nature of DEFI, according to a new article written by researchers from the cryptographic company Flashbots, the University of Lisbon and the Munich Technical University.
Indeed, arbitration – trade to take advantage of the price differences in different exchanges and blockchains – can lead to a rich richeur cycle by which the actors of the dark world of MEV become powerful enough to censor transactions, whether to crush competitors or comply with government orders.
The subtleties of arbitration based on the blockchain “create a powerful incitement to vertical integration”, write the researchers. “The result is a small set of centralized guards.”
MEV, abbreviation of maximum extractable value, refers to the profit that can be drawn from the process of selection and organization of pending transactions to build the blocks that form a blockchain.
The examples include transactions in front, the decline and so -called sandwich attacks.
Arbitration is important: it helps maintain prices online on different exchanges and blockchains. When an asset is too low on a particular exchange, a merchant can buy it and sell it on another exchange where the price is higher, pocketing the difference.
Do this enough times, and prices on the two scholarships will converge.
Today, most arbitrations are done by centralized exchanges. But some traders carry out the entirely onchain arbitration, trying to take advantage of the price differences on decentralized scholarships on different blockchains.
The document revealed that more than 9,000 addresses engaged in transversal arbitration worth $ 868 million between September 2023 and August 2024.
But this trading was extremely concentrated: four addresses represented half the volume they were able to measure. An address represented more than a third of this volume.
The document notes that high frequency negotiation companies and layer 2 blockchains which control transactions using so -called sequencers are among the players well placed to obtain disproportionate power under the current paradigm.
“These alliances concentrate both the physical infrastructure (grouped in a few data centers) and the economic power, creating a feedback loop: the advantages of sequencing give a higher MEV, which funds even more sequencing”, write the researchers.
The decentralization of blockchains is supposed to make funding unshakable. In a world where the crypto settles, for example, a tyrannical government will not be able to freeze the bank accounts of the dissidents.
At least the theory goes. This article shows that centralization and censorship are always hiding around the corner. Of course, Ethereum developers have a plan for this.
“The decentralization of obstacles to the construction of blocks and the reduction of entry barriers – thus undervaluating the exclusive agreements of sequencers – researchers – are critical countermeasures,” write researchers.
Several proposals of this type are in the Ethereum roadmap or under study.
Top stories of the week
This week in governance deffruit
Vote: Aave vote to extend to the Aptos blockchain.
Voting: Arbitrum DAO vote to consolidate the Treasury Management Committees.
Proposal: COLLECTIVE OPTIMIME considers upgrading upgrade for “superchain” interoperability.
Post of the week
There is a theory that we can learn an imminent military operation by following the data accessible to the public on activity in pizzas near the Pentagon. Of course, people of cryptography have (probably illegal) ideas on manipulating this data to make a rapid profit.
If you buy a pile of Paris on the Second World War on Polymarket and Kalshi, you have ordered a pile of pizzas around Alexandria goes and sold the pump which would be considered as a fraud in securities
– PowerPoint Senior engineer (@RyxCommar) June 18, 2025
Do you have a tip on Defi? Handle Aleks@dlnews.com
