Orderly Network uses a hybrid orderbook model that combines the best features of centralized and decentralized exchanges. It offers many benefits like low latency and concentrated liquidity, while also providing full transparency and full self-custody of funds.

One area in particular that Orderly’s unique orderbook structure protects traders is by guarding against MEV: Maximum Extractable Value.

What Is MEV?

Maximal Extractable Value (MEV) refers to the maximum amount of value a blockchain miner or validator can make by including, excluding, or changing the order of transactions during the block production process. Block producers usually order transactions by the highest gas price (transaction fee) in order to maximize their profits, but they don’t have to do so, and can attempt to extract additional value by taking advantage of their ability to arbitrarily reorder transactions — MEV — at the expense of regular users.

For example, bots can monitor for large trades going through a public mempool (a queue where unconfirmed blockchain transactions are stored), copy the user’s trade and create a transaction bundle where their transaction is processed first before the user’s trade. This is known as frontrunning.

Unfortunately, there are numerous other methods through which unscrupulous actors can exploit traders through MEV. One of the most well-known MEV bots in the Ethereum space made millions of dollars in just a few months by performing common MEV strategies. The Flashbots Transparency Dashboard tracks value lost to MEV on the Ethereum network:

How does Orderly solve this?

Orderly uses a hybrid orderbook model for several reasons, including MEV protection.

In more depth, a hybrid orderbook model provides a trading experience that can meet the expectations of every trader, big or small. When Orderly was deciding upon the underlying trading and settlement engine, there were a number of options, such as Automated Market Makers (AMMs), which are utilized by most decentralized exchanges currently. AMMs have advantages in some areas, but one area in which they can be disadvantageous is with respect to MEV protection. The settlement mechanism of AMMs allows orders to be organized in batches and exposed before they are settled, an opening that MEV bots can exploit to extract value at the expense of honest traders.

Meanwhile, hybrid orderbooks blend traditional orderbook systems with AMM liquidity pools. This creates a versatile platform with several benefits — improved liquidity, competitive pricing, flexible order options — and MEV protection.

Orderly Network’s MEV protection features include:

• Fast matching: The sequencer, which matches buy and sell orders, is incredibly quick, processing transactions in only milliseconds. This makes it difficult for MEV extractors to front-run trades.
• Batching: Transactions are batched together before they are submitted to the blockchain, which further reduces the risk of MEV.
• On-chain settlement: All trades are settled on the blockchain, which ensures that traders are not vulnerable to MEV attacks.

Orderly Network’s unique approach to orderbooks goes beyond simply facilitating efficient trades. It actively safeguards users from the predatory practices of MEV extraction, fostering a level playing field for all participants.