Agostino Capponi (Columbia): "Do Private Transaction Pools Mitigate Frontrunning Risk?"

Abstract: Blockchain users who submit transactions through private pools are guaranteed pre-trade privacy but face execution risk. We argue that private pools serve the intended purpose of eliminating frontrunning risk, only if such risk is high. Otherwise, some validators may decide to avoid monitoring private pools to preserve rents extracted from frontrunning bots. Private pools intensify the execution arms race for bots, thus decreasing their payoffs and increasing validators’ rents. The private pool option reduces blockspace allocative inefficiencies and raises aggregate welfare.
Speaker Bio: Agostino Capponi is an Associate Professor in the IEOR Department at Columbia University. His research interests are in financial technology, market microstructure, systemic risk, and economic networks. Agostino's research has been funded by major agencies such as NSF, DARPA, DOE, IBM, GRI, Ripple, and Ethereum. His research has been recognized with the 2018 NSF CAREER award, and with the inaugural JP Morgan AI Research Faculty award. His research findings have attracted attention from major media outlets, including Bloomberg, Thomson Reuters, Politico, and the Financial Times. Agostino is a fellow of the crypto and blockchain economics research forum, an academic fellow of Alibaba's Luohan academy, and an external fellow of the FinTech Initiative at Cornell. He serves as an editor of Management Science in the Finance Department, co-editor of Mathematics and Financial Economics, and area editor of Operations Research Letters. Agostino is the former Chair of the SIAG/FME Activity Group and of the INFORMS Finance Section, and the founding director of the Columbia Center for Digital Finance and Technologies.