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As the Solana network faced challenges earlier this year with congestion affecting traders’ ability to land transactions onchain, the focus has now shifted to the prices traders receive during transactions.
Sandwich attacks, where sophisticated traders exploit price spreads to the detriment of others, have been a persistent issue. DFlow, in collaboration with Solana swap app, introduced a new solution known as conditional liquidity to address this problem.
Conditional liquidity aims to separate toxic from non-toxic order flow by introducing a new class of market participants called segmenters. These segmenters act as intermediaries between users and DEXs, sorting good transactions from bad to mitigate sandwich attacks.
With conditional liquidity, DEX traders are quoted a price and allowed to set slippage, which determines the percentage by which the price can change after the order is submitted. By exploiting slippage, sandwich attackers artificially inflate prices before selling assets for profit, leaving users with suboptimal prices.
DFlow’s segmenters, such as DFlow Aggregator and Clearpool, play a crucial role in implementing conditional liquidity. These segmenters enhance price discovery by achieving better prices for users, attracting more order flow from DEXs and wallets.
According to DFlow founder Nitesh Nath, conditional liquidity may not completely eliminate sandwiching but can significantly reduce it by charging different rates based on the nature of the order flow. This alignment of interests among retail traders, DEXs, and the network is expected to be a game-changer in the market.
While conditional liquidity holds promise for providing honest traders with better prices, the adoption by DEXs remains a challenge. Chris Chung, CEO of Solana swap app Titan, expressed concerns about getting DEXs to embrace the new market structure, citing the need for demand from trading venues and integrations.
Despite the challenges, Nath revealed that several large wallets and apps have shown interest in integrating conditional liquidity. The success of this innovative approach hinges on collaboration and adoption across the ecosystem.