Dark Pools Dominate Ethereum as Private Transactions Surge – at Least by One Measure

As an analyst, I’ve been delving into recent findings from Blocknative, a firm dedicated to combating Maximal Extractable Value (MEV), a term referring to the potential profits swiftly executed by automated bots that capitalize on transactions pending in the network’s public queue before they get processed. Essentially, these bots exploit opportunities for profit-making within transaction data, potentially impacting the overall efficiency and fairness of the system.

On Ethereum, roughly half of all transactions are now sent privately to validators or block proposers instead of being publicly queued in mempools, as indicated by their gas usage. This shift is significant in terms of computational power needed for transaction processing. In September 2022, when Ethereum switched to a proof-of-stake network, private transactions accounted for around 7%, but this figure has grown substantially since the beginning of 2024, reaching nearly 50% from about 15%.

In simpler terms, as a result of this ongoing trend, “the sequence of private transactions can only be seen by those authorized within the permissioned network.” This could potentially lead to centralization if fewer experienced participants disproportionately benefit from these transactions, as Blocknative noted in their blog post about the findings.

As a crypto investor, I find myself in a unique position where only a select few individuals have visibility into the private transactions within the blockchain. This discrepancy between what some can see and others cannot, fosters opportunities and advantages for those in the know.

To experts familiar with such data, it might appear unusual because the usual method for estimating the frequency of private activities involves counting transactions, and this currently stands at approximately 30%. However, just last year in 2022, this percentage was significantly lower, hovering around 4.5%.

However, private transactions are usually more intricate, leading to a higher gas consumption, as suggested by Blocknative.

As a crypto investor, I find that zeroing in on the gas consumption for private transactions provides me with a clearer perspective on the inner workings of the blockchain network. (Blocknative’s post)

One potential drawback when conducting transactions openly, as pointed out by Cutler, is that transaction fees, which tend to change with the demand on the network, can become quite unstable and unforeseeable due to their volatility.

According to Cutler, only specific individuals, or the ‘block builders’, possess unique insights into the network. This special access to particular details grants them an advantage. It’s a significant aspect of reality.