MEVZero, No Slippage Trading

Sub-Millisecond Finality

Slippage is a DEX phenomena created through multi-second latency—the difference between the price the user sees on the interface and the actual settlement on the backend. Slippage exists in traditional markets too, by with finality denominated in milliseconds, this variance is much smaller.

Because VDEX brings sub-millisecond finality to decentralized trading, this frontend to backend variance is much smaller.

Another problem introduced by latency, as well as by approving multiple transactions together in blocks, is maximal extractable value (MEV). MEV is a complicated topic, but effectively works as follows:

1. User submits transaction with a price and slippage tolerance

2. A bot observes the price and volume, as well as how this order will affect the AMM or orderbook

3. The bot creates one or several orders and bribes the block creator to position their orders in front of or around the user's order

4. The user receives the worst price as allowed by the expected price and slippage tolerance, this difference is pocketed by the MEV bot

Therefore to eliminate most MEV, a rollup must eliminate latency and batch finality while ensuring privacy. Virtual Rollup allows users to verify their own transactions. These trades are private between the user and the exchange, and only becomes observable after it has already affected the orderbook. These trades are settled in under a millisecond on the same machine, which is in Tokyo.

Most importantly, the Virtual Rollup is not a blockchain. The Virtual Rollup is a ZK State Channel. What this means for traders is that transactions are settled in streams, not in blocks. So once the user or VDEX receives a request from one another, it is signed and immediately sent back. Trades do not need to be placed in blocks, which means MEV bots cannot bribe their order placement into predefined order batches.

In summary, VDEX achieves MEVZero and no slippage trading through the Virtual Rollup 1.2 which is defined by sub-millisecond finality, private trading, and data streaming.