Key Takeaways
- • Blockchains have achieved sufficient throughput capacity (tens of thousands of transactions per second with further improvements expected) to compete with traditional financial infrastructure, but raw speed alone is insufficient for financial applications.
- • Transaction predictability—reliable guarantees on when transactions will be included on-chain—is now the critical bottleneck for competitive onchain financial markets, not processing speed.
- • Unpredictable transaction delays, whether adversarial or accidental, render many onchain financial applications uncompetitive or unusable, creating systemic risk for market participants.
- • Market makers on onchain orderbooks require short-term inclusion guarantees to maintain tight spreads; without them, they face adverse selection losses from arbitrageurs exploiting stale prices, forcing wider spreads that reduce venue competitiveness.
- • a16z crypto positions predictable transaction execution as the foundational infrastructure requirement for onchain markets to achieve functional parity with traditional financial systems.
Summary
Blockchain infrastructure has crossed a critical performance threshold in raw transaction throughput, with production systems now capable of processing tens of thousands of transactions per second and further scaling improvements anticipated. However, a16z crypto argues that transaction volume capacity alone is insufficient to enable competitive onchain financial markets. The firm identifies transaction predictability—a reliable guarantee on when a submitted transaction will be included on-chain—as the decisive infrastructure requirement distinguishing viable onchain financial applications from those that remain fundamentally uncompetitive.
The lack of predictable transaction inclusion creates operational friction that undermines core financial functions. When transactions face unpredictable delays—whether due to network congestion, adversarial ordering, or other factors—critical market structures become unreliable. This unpredictability is particularly acute for onchain orderbooks, where market makers must continuously update bids and offers to reflect real-time market conditions and prevent losses from adverse selection.
For market makers operating onchain orderbooks, the mechanism is straightforward: they maintain tight spreads (the gap between buy and sell prices) to attract volume while managing exposure to rapid price movements. When external events such as Federal Reserve announcements move asset prices significantly, market makers must update their orders quickly to avoid being filled at outdated prices by arbitrageurs. If a market maker's transaction to update orders encounters unpredictable delays, arbitrageurs can profit by executing against stale prices, forcing the market maker to absorb losses. In response, market makers widen spreads to compensate for this execution risk, directly reducing the competitiveness of onchain venues relative to traditional markets where transaction execution is near-instantaneous.
A16z crypto frames predictable transaction inclusion as the prerequisite infrastructure layer that must be solved before onchain financial markets can achieve functional and competitive equivalence with traditional financial systems. Without this guarantee, market participants cannot operate with the efficiency assumptions that drive traditional finance, creating a structural disadvantage that no amount of raw throughput can overcome.
The lack of predictable transaction inclusion creates operational friction that undermines core financial functions. When transactions face unpredictable delays—whether due to network congestion, adversarial ordering, or other factors—critical market structures become unreliable. This unpredictability is particularly acute for onchain orderbooks, where market makers must continuously update bids and offers to reflect real-time market conditions and prevent losses from adverse selection.
For market makers operating onchain orderbooks, the mechanism is straightforward: they maintain tight spreads (the gap between buy and sell prices) to attract volume while managing exposure to rapid price movements. When external events such as Federal Reserve announcements move asset prices significantly, market makers must update their orders quickly to avoid being filled at outdated prices by arbitrageurs. If a market maker's transaction to update orders encounters unpredictable delays, arbitrageurs can profit by executing against stale prices, forcing the market maker to absorb losses. In response, market makers widen spreads to compensate for this execution risk, directly reducing the competitiveness of onchain venues relative to traditional markets where transaction execution is near-instantaneous.
A16z crypto frames predictable transaction inclusion as the prerequisite infrastructure layer that must be solved before onchain financial markets can achieve functional and competitive equivalence with traditional financial systems. Without this guarantee, market participants cannot operate with the efficiency assumptions that drive traditional finance, creating a structural disadvantage that no amount of raw throughput can overcome.
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