What are Intent-Based Transactions in DeFi

Introduction

Risk, volatility, uncertainty, liquidation are a few words that strike our minds when we talk about decentralized finance (DeFi). The innovation that claimed to liberate humanity from the shackles of conventional banking can be hazardous for users in its own way. Due to these very reasons, critics started thinking of it as a bubble, which was going to burst sooner or later. However, technological changes in blockchains, decentralized exchanges, smart contracts have somewhat helped free DeFi from the charges. One of these changes is intent-based transactions in DeFi.

What are Intent-Based Transactions?

Before trying to understand the concept of intent-based transactions, you need to grasp the old concept of DeFi transactions, which caused many to lose substantial amount of money. Previously, DeFi users needed to give instructions to the blockchain smart contracts regarding every single step. These steps included taking their tokens from the wallet, carrying it to the specific liquidity pool, trading or swapping it by paying gas fees, and bringing the traded token back to the wallet. The most serious problems was that if the target liquidity pool turned out to be empty or the gas fees were not what the users specified, the transaction could not proceed, resulting in the loss of crypto assets paid in terms of gas fees. The transaction was reverted.

Crypto traders and analysts refer to the old method as imperative method. The current version of intent-based transactions is declarative method. Intent-based transaction implies carrying out a DeFi transaction by stating what you want, leaving the route and manner of transaction to the third-party agents called searchers or solvers. Intent in this case means the desired outcome. It has brought the DeFi experience out of highly complicated system that required traders to search affordable gas fee options and safe routes for their transactions. It used to be like solving a puzzle, but now it is far simpler and smoother.

How Intent-Based Transactions Work

Intent-based transactions have changed the very lifecycle of DeFi transactions. Instead of keeping your transaction in the mempool (memory pool), which is a waiting area for the standard transactions, solvers pick intent-based transactions and handle them off the public waiting area or mempool. Intent-based transactions proceed in four distinct steps as described in the subsequent subsections.

1. Intent Declaration

At the outset, a user describes what exactly they want. For example, they may want to swap token A with token B, or they may say something like “I have 1 BTC, and I want 90,000 $USDT and I want to pay $$$ in terms of gas fees”. There is no need to specify the route or liquidity pool. A solver picks up the message and starts working on it.

2. Delegation of Transaction

The solver, which has got the message of the user does not necessarily execute the transaction itself. It broadcasts the message to the whole network of solvers in order to find the optimum route, pool, etc.

3. Execution

When all the solvers see the intent, they compete to carry out the desired outcome. They may aggregate liquidity from various sources, batch multiple orders, or use their own inventory to fulfill the request.

4. Final Settlement

After the completion among solvers, one is chosen by the network. The chosen solver executes the transaction on chain. The trader is entirely free of the problem of the gas fees, so much so that solvers often pay it upfront and deduct it from the user’s final balance only after the trade has concluded with the intent stated in the beginning.

Examples of DeFi Solvers and Service Providers

It follows from the preceding discussion that intent-based trading is a more popular practice in today’s DeFi world. Many networks are switching to this practice.

1. UniswapX

Uniswap Labs developed this intent-based trading mechanism that collects liquidity and gas fee information by using competition and auction mechanisms. It employs Dutch auction mechanism to provide user better pricing and occasionally gas-free swaps.

2. CoW Protocol

You can submit your trade intentions instead of transaction details on this decentralized exchange indicator. Solvers collect these intents, batch them, and run combinational auctions to find optimal execution paths and best pricing. Its working mechanism is referred to as “coincidence of want” mechanism.

3. 1inch Fusion

1inch Fusion also uses Dutch auction mechanism like UniswapX. It is an intent-based swap solution to enable users to perform zero gas fee MEV-protected trades. Users sign their swap intent, and resolvers include gas costs within the exchange price, so users don’t need native tokens for gas.

4. Across Protocol

Across Protocol is a cross‑chain bridge that uses intents to move assets quickly and cheaply between blockchains. It is mainly known for its speed and cost efficiency.

Advantages of Intent-Based Transaction

Old transaction method is tedious and highly complicated. Using intent-based transaction, you need not worry about gas spikes, failed transactions, or bridging assets across chains manually.

Moreover, traditional transaction process is vulnerable to Maximal Extractable Value (MEV) attacks, such as front-running or sandwich attacks. But intent-based trading is free of this risk as solvers themselves protect the trade value as they are incentivized for it. The trade is not considered finalized until the user’s intent is fulfilled.

Finally, you can save a lot your hard-earned money by using intent-based transaction options. The network of solvers compete to find the most cost-effective route, gas fee and pools.

Demerits of Intent-Based Transactions

Paradoxically, intent-based transactions are vulnerable to centralization risk despite being a method in decentralized finance. The reason is that only a few companies have entered the field of providing this service to DeFi traders. Monopoly of a big players can take away the advantage of cost effectiveness.

Off-chain activity of solvers is not as transparent as it should be. You need to trust the network of solvers and believe that it is working fairly.

Bottom Line

The intent-based transaction provides us with better pricing, cost-effective trades, but it is not immune to the risk of centralization and the issue of transparency, which is a bit weaker than that in standard transaction methods.