Solana's New Challenge: Pursuing Higher Quality Transactions Instead of Simply High Volume

Solana, as a high-performance blockchain platform, is known for its fast transaction processing and enormous volume. However, does this mean it has achieved its ideal goals? A deep analysis of Solana's transaction situation reveals a thought-provoking question: Are these transactions creating actual value?

In fact, the large volume of transactions on Solana does not stem from real trading demand, but rather from high-frequency arbitrageurs leveraging millisecond information asymmetry to profit. These participants, referred to as "toxic traders," exploit their technological advantages to prioritize their transactions by increasing Gas fees when market makers are about to cancel orders, thus completing arbitrage and causing market makers to incur losses. To compensate for these losses, market makers are forced to widen the bid-ask spread, ultimately resulting in additional costs for ordinary users.

Solana has always had a vision of implementing an order book on-chain to replace centralized exchanges. However, the presence of "toxic traders" has become a barrier to achieving this goal. This is the new challenge that Solana currently faces: volume does not equate to liquidity. A truly healthy market does not require more transactions, but rather higher quality transactions.

How to exclude toxic trades to better protect liquidity?

In the current Solana system, due to its consensus mechanism adopting a periodic auction mechanism, takers (especially high-frequency arbitrageurs) actually enjoy priority, which affects the fairness of the market. Specifically, Solana's consensus mechanism has a time slot (Slot) of 400 milliseconds, during which transactions are executed in order of the Gas fees paid.

This mechanism often leads to market makers being "sniped" by high-frequency arbitrageurs when they frequently adjust quotes, cancel orders, and place new ones. Arbitrageurs complete transactions by paying higher fees before market makers can cancel their orders, causing the market makers to incur losses.

Ideally, an order book decentralized exchange (DEX) should execute trades in the following order: first cancel all orders, then execute new orders, and finally execute trades. However, Solana's current consensus mechanism cannot achieve this at the micro level.

Similarly, in terms of oracle pricing, the ideal situation is to update the oracle price first and then execute the transactions that depend on that price. However, within the current 400 milliseconds interval, the market may experience significant fluctuations, causing transactions to still be executed at the original price.

For lending agreements, the best practice is to top up the margin before proceeding with liquidation.

Therefore, Solana needs a mechanism that allows different protocols to prioritize transactions on demand, which is what Solana has always emphasized as Application-Controlled Execution (ACE).

BAM: Solana's Solution

To address these challenges, Solana has proposed the Block Assembly Marketplace (BAM) solution. BAM builds a sorting layer or preprocessing layer between the application and the mainnet on the Solana chain.

BAM utilizes Trusted Execution Environments (TEEs) to build a privacy sandbox, where transactions are sorted according to predetermined rules or the first-in, first-out (FIFO) principle within the sandbox. This mechanism aims to better serve protocols such as Central Limit Order Books (CLOBs), perpetual contract exchanges, and dark pools.

How BAM Works

The trading process of BAM is as follows:

1. The user confirms the transaction in the wallet.
2. Transaction sent to RPC node.
3. Transfer transactions to the BAM network and sort them in the TEE privacy environment. During this process, nodes may add additional transactions through plugins, such as updating oracle prices, and then generate proofs.
4. The transaction data packet is submitted to the Solana mainnet Leader node.
5. The leader collects transactions, collects BAM data packets, and packages them into blocks for broadcasting.
6. Other nodes vote.

It is worth noting that BAM does not conflict with the consensus process of the Solana mainnet, but rather serves as an optional feature. BAM does not operate directly on the Solana mainnet, but rather completes transaction sorting in an "off-chain" manner, packaging transactions before submitting them to the Solana mainnet.

Core Features of BAM

BAM supports three operating modes: Solana default mode, Block-Engine mode (the current MEV solution of Jito, which is based on a bidding mechanism), and BAM mode (validators strictly follow FIFO order).

The core features of the BAM model include:

1. Trusted Execution Environments (TEEs): Utilize TEEs to build a privacy environment, ensuring the fairness of transaction sorting.
2. Plugin System: Allows applications to build custom trading sorting logic, achieving complex trading sorting while maintaining the security of the TEE environment.

Practical Applications of BAM

The application scenarios of BAM include:

1. Lending liquidation protection: prioritize the execution of additional collateral operations before conducting liquidation checks.
2. Atomic-level transaction combinations: first update the oracle price, then execute transactions that depend on that price, and for contract DEX, relevant derivatives can also be settled.
3. Price fluctuation protection: Detect abnormal large orders, split them into smaller chunks for batch execution, giving the market time to react.
4. Market Maker Protection: In the event of an emergency, the ability to cancel orders, update oracle prices, and re-list orders within milliseconds to avoid malicious arbitrage.

Overall, BAM brings verifiability, privacy protection, and programmability to the transaction processing workflow of Solana. It enables developers to build central limit order books, perpetual contract exchanges, dark pools, and other financial infrastructures that require order control, deterministic execution, and privacy protection, thereby promoting innovative development within the Solana ecosystem.

With the deployment of BAM, the trading experience on Solana will be significantly improved, bringing the experience of Solana mainnet applications closer to that of centralized exchanges while maintaining the advantages of decentralization. This advancement will bring new development opportunities to the Solana ecosystem, emphasizing not only high performance but also the quality of transactions and market fairness.