Introduction to Intents

Many blog posts explain the concept of intents in blockchain, is there really a need for another one? Short answer: yes. Existing resources are impenetrable, skip over basic concepts, or are otherwise inaccessible. With intents garnering heightened attention recently, there's a growing need for a clear understanding of their implications and usage in the blockchain space.

This blog post aims to provide an approachable explanation of intents, beginning with some historical context, followed by a technical explanation of what they are, how they work and what the broader implications are for the DeFi ecosystem. The intended audience for this post includes developers, market-making solvers & the average DE-FI user.

A bit of context

Before diving into what intents are, it's essential to understand their place within the broader context of blockchain infrastructure, particularly in transaction order flow and block building.

In the early days of blockchain, miners aimed to maximize the value of the blocks they were building by including transactions that paid higher gas fees. This concept, though not explicitly termed as such, was an early form of miner extractable value (MEV). MEV is the value that can be derived by miners in Proof of Work (PoW) or proposers and builders in Proof of Stake (PoS) simply from block building.

When Ethereum transitioned to PoS Proposer-builder Separation (PBS) was implemented and it fundamentally changed the dynamics of block building bringing more complex ordering behavior. Suddenly bundlers and builders in PBS realized they had the ability to front-run and generally optimally re-order blocks with significant reduction of the necessary computing power required for block creation.

Proposers on the other hand could optimize by outsourcing the work to external entities, running auctions to find the most MEV-optimized block while earning a commission.

It's important to note that this evolution led to more sophisticated strategies, such as private mempools, backrunning MEV returns, and solutions that unbundle the mempool and block builder role from existing blockchains offering a highly specialized and decentralized plug-and-play alternative, aiming to address incentive misalignment in the ecosystem.

Modern problems require modern solutions, and from an end user point of view, the MEV problem definitely requires a modern mitigation. It's argued by some that Intent-centric architectures could provide a solution to these problems while others argue that they will only bring new problems and won't result in significant changes. With that context, let's dive into what intents are, how they fit into order flow construction and decide for ourselves.

Intents Are…

An intent is a user's declaration of price preferences for order flow construction in a marketplace that guarantees fulfillment or will not execute at all.

For example, a user might prefer to have ETH over USDC and publish a desire for a swap at a specific price. In essence, an intent is a transaction-like message with certain execution guarantees, designed to abstract complexity.

If the user's price point is not met with another intent, the swap won't execute at all.

The main difference between intents and traditional DE-Fi is that intents answer the question of what and not how meaning that the user only needs to specify what is their desired action to be taken, not how it should be executed.

For a practical example, a user intent might look like this:

{
  inToken:        0x0,   // ERC20 contract, here ETH is specified by 0's contract
  inTokenAmount:  1,     // 1 ETH
  outToken:       0x..., // ERC20 contract for USDC
  outTokenAmount: 3000   // 3000 USDC
}

This intent, signed and transmitted, is published allowing the network's solvers to propose solutions by constructing transaction order flows that satisfy the intents. Solvers participate in auctions with their solutions, competing on optimization. Once a winning solution is proposed and built into a block, the intent has been solved.

Solvers analyze all published intents to find those they can fulfill, typically aiming for arbitrage opportunities. For example, they may monitor market prices on centralized and decentralized exchanges or maintain their own price points. By identifying intents where market prices meet or exceed user-specified prices, solvers can fulfill these intents at a profit. In a competitive solver market, they optimize prices to win auctions.

During an auction, solvers evaluate the same set of intents and select those they can fulfill most effectively. For example, if 10 users want to sell ETH for USDC at around 3800 USDC per ETH, a solver might fulfill these swaps at 3840 USDC, earning an arbitrage margin of 40 USDC per ETH. Another solver might offer 3830 USDC to outbid them. Utility scoring in the auction measures how much better the solver's price is compared to the user's requested price.

Incentive compatible

A key aspect of intents is their incentive compatibility. This concept, rooted in game theory and mechanism design, ensures that the best outcome for all participants is achieved through honest behavior. The users and solvers cooperate honestly in the intent game.

For users, revealing a dishonest price preference (e.g., undervaluing a desired outcome) can result in unfulfilled intents, leading to a negative outcome while for solvers, proposing solutions that lose value or are inefficient risks losing the auction. This structure encourages honesty and optimization, returning value to users.

Previously builders had no concern for the effects of transaction ordering and transaction flow manipulation on users. Their incentives were to get the "most valuable" (for them) block built and added to the chain. By requiring the solutions meet the constraints of the published intents of the users as an additional part of consensus, the builders (now solvers) incentives are re-aligned toward satisfying users' requirements not just their owns. This doesn't get rid of opportunity for the solvers though, as they will be still able to make markets in a way that provides a high volume of arbitrage opportunity.

How Intents Work

Intents facilitate registration, fulfillment, and settlement through key components like user preferences and execution guarantees. Users interact with intents via intuitive interfaces, ensuring efficient, fast, and secure transaction processing. To achieve this, the network needs a few operators:

  • Users: The primary drivers of intents, creating, signing, and submitting intents through applications.
  • Applications: Facilitators of intents, driving innovation and liquidity, all
  • Solvers/Market Makers: Responsible for constructing transaction flows and fulfilling intents.
  • Builders and Validators: Supporting infrastructure for intent registration, fulfillment, and settlement.

The intent lifecycle encompasses registration, fulfillment, and settlement.

Intents are either registered on-chain for decentralization or off-chain to reduce costs. On-chain registration ensures censorship resistance but at higher costs, while off-chain registration offers operational advantages but requires addressing centralization concerns.

Solvers optimize intent fulfillment through auctions, proposing solutions that exceed user preferences.

Settlement involves executing the fulfilling bundle and validating state transitions for accurate execution. This step is crucial for maintaining trust in the system and ensuring that the intent's objectives are met satisfactorily. Validators verify the integrity of the executed transactions and confirm that the intent has been fulfilled according to the specified terms.

Challenges in settlement include ensuring correct execution and state transition, preventing fraud or manipulation, and maintaining transparency throughout the process. Solutions may involve implementing robust verification mechanisms, utilizing secure and transparent smart contracts, and fostering community oversight to uphold the integrity of the settlement process.

Ecosystem implications

Builders to Solvers to Market Makers

Intents shift the incentive structure from MEV to market-making. Solvers, acting as market makers, handle liquidity deployment more efficiently than liquidity pools, reducing the need for on-chain pricing mechanisms.

Comparing to trad exchanges, the efficiency gain, with a dex you have the risk of being front runned, more efficient pricing mechanism because. if you have an intent based system the MEV searchers turn into solver, the are trying to find the most efficient solution which is good for the user because they will have the best priced guaranteed

MEV Realignment

Intents mitigate MEV by ensuring users' intent fulfillment is not subject to reordering. This shifts solvers' focus to arbitrage opportunities, optimizing user outcomes and market efficiency.

On-Chain Pricing Mechanisms

With solvers as market makers, the need for on-chain pricing mechanisms diminishes, potentially eliminating the necessity for liquidity pools.

Conclusion

Intents represent a significant evolution in blockchain technology, addressing incentive misalignment and simplifying user experience while enhancing market efficiency. By understanding the history, mechanics, and implications of intents, we can appreciate their potential to transform the blockchain ecosystem.