How Private Transaction Pools Work on Ethereum
Private transaction pools like the Eden RPC offer substantial upside to traders on Ethereum. Benefits like transaction privacy and protection from malicious MEV have attracted tens of thousands of traders to use these private transaction pools to get better prices on their trades and to improve their bottom line.
Ready to try it yourself? Add Eden Network to MetaMask and start trading now.
In this blog, we unpack how private transaction pools help traders, along with the new possibilities these private transaction pools create.
What is the problem in the first place?
The default transaction handling method on Ethereum is a public transaction pool, which is, well, maybe a little too public.
When a trader submits a trade from their wallet, it gets sent to something called the ‘public transaction pool’ as it sits awaiting for uptake and processing by a block producer.
In a public pool, other actors can see the pending trades, and all their transaction details such as base fee, priority fee and nonce.
Depending on the details of your trade, sometimes it’s profitable for other actors to slip in similar transactions to yours right before your purchase, causing you to have to pay a higher price for your tokens.
Another way to think of it is like this: let’s say you go to the car dealership with the intention of buying a new car. You find one that you like, but before you can actually purchase it, you first have to go to the front of the store and announce on intercom which car you are buying and all your financing terms.
Then you have to wait a few minutes until you can actually make the purchase.
Knowing what your terms of purchase are, a car reseller can take advantage of his relationship with the dealership and swoop in to buy your car just before you finalize the transaction.
He then turns around and offers to sell the car to you at a 2% higher price. Because you specified when you made the purchase announcement at the front of the store that you’d be willing to pay up to 2% higher for the car, the reseller is aware of this and is able to take advantage of your price slippage.
And all of a sudden you’ve paid just slightly more for your car.
This is, essentially, exactly what happens to your trades on Ethereum. It’s a major problem that costs traders millions of dollars a day in the “hidden tax” of DeFi.
How private transaction pools can help
One of the current solutions to this ongoing problem is the use of private transaction pools to hide your transactions until after they are executed in a block.
When a trader submits a transaction, instead of their details being shared in the public transaction pool, they are sent to a private transaction pool that does not gossip the transaction until the trade is executed.
Only after the trade is executed, are the details of the transaction made publicly available on the blockchain.
This approach is not foolproof but more often better than the status quo. The worst case scenario is that your transaction is leaked intentionally or unintentionally to the public transaction pool. For example, ~5% of blocks are uncled, which effectively leaks transactions to the public.
Going back to the car analogy, the equivalent of a private transaction pool would be the removal of the requirement to broadcast your upcoming purchase to the entire dealership.
Instead, your purchase details would stay safe with the finance department until finalized.
There is no opportunity for car resellers to drive up your purchase price.
This is just the type of benefit that the Eden RPC offers to traders.
This sounds good, but what’s the catch?
The “catch,” so-to-speak, is that it most likely will take slightly longer for your transaction to execute.
This is because not all Ethereum block producers are part of the Eden Network. At the time of writing, the participating hashrate is roughly 40% — so it will take on average a little more than twice as long for your transactions to process.
This is the only noticeable real-world difference that a trader might notice — and given that the average transaction time wallets like MetaMask aim for is ~30 seconds, doubling this — to one minute — might be how long you have to wait with the Eden RPC.
So in essence, the tradeoff for having transaction privacy and protection from malicious MEV, is potentially waiting a couple more minutes for your trade to go through.
How does the solution work?
The solution, at a high level, is simple — instead of gossiping transactions to the entire network, transactions are sent directly to specific block producers.
The other parts of the process are very similar — the trade starts in the user’s wallet, goes to a waiting pool, and is picked up and written to an Ethereum block by miners.
There are several options when choosing a private RPC solution. The Eden RPC offers among the fastest and most predictable trade execution and gives trades additional priority options through staking.
Users trade like normal, and can interact with all DEXs and dApps per usual and receive MEV protection on every transaction.
Overview of Eden Rocket RPC (Beta)
If you’re a trader who values speed and privacy, the Eden Network has released a new option for you.
The Eden Rocket RPC (Beta), combines the hashrate of multiple private tx pools, increases the speed of transaction processing, but sacrifices some specificity on which private transaction pool the transaction gets sent to.
With the Eden Rocket RPC, the main benefit is speed of execution as nearly the whole Ethereum hashrate is included. While these transactions should always have MEV protection, this cannot be guaranteed as it depends on third parties.
For those that need speed with a high probability of MEV protection, however, this is the fastest solution on the market.
When is it worth it to switch?
Using the Eden RPC gives you peace of mind when trading on Ethereum. It takes just two minutes to set up, and you can interact with Ethereum just like you normally do.
When you make trades, it makes sense to consider a private transactions pool like Eden, as there is virtually no downside to using it. You can even switch between mainnet and Eden for when you are making more sensitive transactions like DEX trades.
For more advanced and frequent traders, we also recommend staking EDEN tokens to receive transaction priority. This is an additional benefit that is particularly helpful for moderate to heavy DEX traders.
Which wallets support custom RPCs?
Eden has partnered with a number of wallet providers who have made integrating with the Eden RPC a native feature within the UI.
Furthermore, most full-feature software wallets (e.g. MetaMask) support the addition of a custom RPC.
