Blockchain is a distributed ledger technology built around the principles of transparency and decentralization. Initially conceived as the backbone technology for cryptocurrency payments, blockchain has expanded to support a large class of business applications. We begin by discussing automated Market Makers (AMMs), the most prominent class of smart contracts which implement pricing schedules for decentralized exchanges (DEXs). (DeXs) employ a loss mutualization mechanism where arbitrageurs offering higher gas fees capture sniping opportunities. We show that this leads to a "tragedy of the commons" scenario, discouraging liquidity providers from updating outdated quotes due to high transaction costs. We then discuss allocative inefficiencies and unfairness of existing blockchains. We demonstrate why the pre-trade visibility of order flows exposes users to the risk of being frontrun by malicious actors. We show that existing solutions based on private communication channels between users and validators cannot reduce miner extractable value, and do not yield allocative efficiency.

(joint work with Ruizhe Jia and Ye Wang)