Order but Not Execute in Order

We explore combining batch order-fair atomic broadcast (of-ABC) and frequent batch auction (FBA) as a defense against general order manipulations in blockchain-based decentralized exchanges (DEX). To justify FBA, we compare the welfare loss of decentralized exchanges under two market designs: continuous limit order book (CLOB), where transactions are processed sequentially, and FBA, where transactions are arranged into batches and a uniform price double auction decides execution order. We model three types of players, common investors, privately informed traders, and arbitrageurs who can provide liquidity and front-run, along with a decentralized exchange. Assuming that the exchange is realized over an of-ABC protocol, we find that FBA can achieve better social welfare compared to CLOB when (1) public information affecting the fundamental value of an asset is revealed more frequently, and/or (2) the block generation interval is sufficiently large, and/or (3) the priority fees are small compared to the asset price changes, and/or (4) fewer privately informed parties exist. Intrinsic reasons are that first, blockchains already treat time as discrete and ensuring order fairness there is non-trivial, allowing even more room for latency arbitrage rents under CLOB; second, sufficiently large block creation interval allows for information dispersion; third, higher priority fees discourage front-running under CLOB; additionally, FBA prioritizes price in deciding execution order and fewer informed traders mean less adverse price impact.