🪜Overcoming Solvers' Limitations

Protocol-level issues with modern intents solutions

General issues with solvers

Competition

For the market to function efficiently, it is essential that there is fair competition between solvers. We can see through numbers that this does not exist in the space currently. Most intents-based solutions rely upon a very similar network of solvers that consistently win most auctions. Through this it is evident that there is some edge that entrenched solvers are able to extract, rendering the ecosystem detrimental to the end user.

MEV as an Incentive

A part of the problem could be the incentive to earn more as a solver by running MEV strategies. As there is more centralization in the solver market, MEV extraction becomes easier. This leads to a scenario where the user receives a chronically degrading experience. Theoretically, solvers should be incentivised to share MEV with their users, which can be used to keep fees low. However, this has not worked in practice, and it has been difficult to develop a robust system where such an incentive structure exists.

Profitability

Solvers are essentially specialised market makers. This means that staying in business is an extremely complex task. Developing proprietary solver algorithms is a tall order, and profitable ones are even harder to come by. It is not uncommon for solvers to leave the space over time due to an inability to maintain profitability. This eventually hurts competition and therefore decentralisation.

Becoming a Solver Barrier

The concept of a solver exists due to the notion that specialised market makers can efficiently fill user intents. The underlying assumption here is that sophisticated algorithms are required for solvers to operate. However, it is clear that the variable that must be optimised for is liquidity exposure. In the current state, liquidity cannot expand due to the complex algorithm requirement. BalloonDogs enables liquidity to be freely integrated, which will ultimately result in the best execution experience for the end user.

What is Missing?

Considering the versatility and composability of intents, they should have taken over DeFi execution by now. However, in its current conception, there are huge trust assumptions on solvers, and strong anti-user MEV incentives. This prevents intents systems from being applied to broader use cases.