Key Highlights
- a16z crypto says blockchain throughput has improved enough that other infrastructure constraints are becoming more important for financial markets.
- The firm argues that markets need predictable rules for transaction inclusion and ordering.
- a16z says reliable access to blockspace could reduce dependence on a single operator or transaction pathway.
Blockchain networks have become faster, but higher transaction capacity does not by itself address all of the requirements of financial markets.
In a research post published September 3, a16z crypto argued that financial applications also need predictable transaction processing, reliable access to execution and greater control over when sensitive information becomes visible.
The firm said aggregate blockchain throughput has increased more than 100-fold over five years, while some production networks can now process tens of thousands of transactions per second. As capacity improves, a16z argues that questions around execution and market structure are becoming more relevant.
Predictable execution matters for onchain markets
a16z argues that financial applications need greater certainty about when transactions will be included and how they will be positioned relative to other transactions.
The issue can be particularly relevant for onchain order books.
If a trader submits a cancellation but the transaction is delayed, another order could execute against the existing order before the cancellation takes effect.
The firm therefore separates transaction inclusion from transaction ordering.
Inclusion determines whether a valid transaction reaches the execution process, while ordering determines its position relative to other transactions.
For financial markets, a high-capacity network may still create uncertainty if participants cannot predict when an order will be processed or how it will be prioritized.
Reliable access to blockspace is another concern
The research also looks at what happens before a transaction reaches the execution layer.
a16z argues that financial applications could face problems if access to transaction processing depends too heavily on one operator or pathway.
The firm refers to this issue as Strong Chain Quality, which examines whether participants have reliable access to the next stage of execution.
One approach discussed in the research is allowing transactions to reach execution through multiple routes rather than relying on a single queue.
That could reduce the influence of an individual operator over which transactions reach the execution process first, although such designs can also require more complicated network infrastructure.
Transaction ordering can affect trading outcomes
Once transactions reach a blockchain, their sequence can influence how trades are executed.
Many blockchain systems rely on block builders or proposers to determine which transactions are included and in what order. Depending on the network design, those participants may have discretion over transaction priority.
This creates a connection with maximal extractable value (MEV).
One example is sandwich trading, where a participant identifies a pending transaction, places another transaction before it, and then trades again afterward to benefit from the resulting price movement.
For financial markets, a16z’s broader concern is whether participants can understand the rules governing transaction priority before submitting an order.
The research points to approaches including deterministic priority mechanisms and application-specific ordering rules. These are intended to make execution rules more predictable rather than leaving priority entirely to individual block producers.
Pre-trade privacy could become more important
The research also identifies the visibility of pending transactions as a problem for onchain financial markets.
On public blockchains, information about a pending transaction can reveal a trader’s intentions before execution.
For example, the size and direction of an order could indicate that a fund is building or reducing a position. If other participants see that information early, they may adjust their own trades before the original order is completed.
a16z therefore distinguishes pre-execution privacy from the transparency of completed transactions.
The issue is particularly relevant to financial markets because participants may want completed trades to remain auditable while keeping their trading intentions private beforehand.
Encryption could limit early disclosure
The research discusses cryptographic approaches such as timelock encryption and threshold encryption as potential ways to protect pending transaction information.
Under these approaches, transaction details could remain encrypted until a specified point or until the conditions for execution are met.
That would allow a market to limit the visibility of pending orders while retaining transaction records that can later be inspected and verified.
These technologies remain part of the broader infrastructure discussion rather than a universal solution for onchain markets.
a16z has previously focused on onchain Finance
The latest research follows other recent a16z positions on blockchain infrastructure and financial markets.
In August, a16z supported an SEC proposal to rescind Rule 611, which governs trade-through protections under Regulation NMS. The firm argued that removing the requirement could give blockchain-based trading venues more flexibility as securities move onchain.
In July, a16z also argued that traditional financial institutions may be more interested in using blockchain infrastructure for existing financial activities than in adopting DeFi as a whole, pointing to areas such as tokenization and settlement.
Those positions provide context for the latest research, which focuses on the infrastructure requirements that would come with greater use of blockchains by financial markets.
What the research means for onchain finance
The argument is not that throughput has stopped mattering. Rather, a16z says improvements in transaction capacity are making other constraints easier to see.
A blockchain can process large volumes of transactions while still presenting problems if users cannot reliably submit transactions, predict their execution order, or protect sensitive information before trades are completed.
For financial markets, those requirements can affect execution and market behavior independently of raw transaction capacity.
As financial activity moves onchain, a16z argues that the focus is shifting toward whether markets can provide reliable transaction access, predictable execution and privacy before trades are completed.
Also Read: Chainlink Partners With Bottomline to Explore Blockchain-Based Payments
