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Earlier this year, Solana’s network congestion raised concerns about traders’ ability to land transactions onchain.
Today, traders have a much easier time securing trades, but concern has once again focused on the prices they get in doing so.
Widespread sandwich attacks, in which sophisticated traders exploit price gaps at the expense of non-sophisticated traders, have proven to be a long-standing and difficult problem to solve. The Solana swap app and market infrastructure company DFlow brought an interesting new solution to the table when they proposed conditional liquidity, which tasks new market intermediaries with separating toxic and non-toxic order flows.
When a DEX trader tries to exchange one cryptocurrency for another, he is offered a price and allowed to set a slippage, which is the percentage by which the quoted price can change after the order is placed. Solana sandwich attackers use slippage through front-running trades to artificially increase the price by a few basis points before selling the asset for a profit immediately afterwards, leaving the user with a worse price. In total, sandwich attackers can make millions a day.
DFlow proposes adding a new class of market participants, called segmenters, to separate toxic and non-toxic order flows and limit sandwich attacks.
Segmenters, which will be chosen initially by DFlow, sit between users submitting the trades and the DEXs they receive, essentially sorting good from bad trades. When DEXs receive these tagged transactions, they can charge higher fees to sandwichers and lower fees to everyone else.
Contingent liquidity “doesn’t completely solve sandwiching” but can reduce it by charging different fees, said DFlow founder Nitesh Nath. “The magnitude of the sandwich reduction is proportional to the difference in the higher rate for toxic flow and the lower rate for non-toxic flow.”
DFlow has already launched a segmenter called DFlow Aggregator and a conditional liquidity DEX called Clearpool.
Segmenters aim to create an order flow marketplace, where the better the price segmenters achieve for users, the more order flows DEXs and wallets send them. Segmenters make money by collecting a share of the price improvements they provide.
“Conditional liquidity aligns the interests of retailers, DEXs and the network – a win-win-win for all parties involved. We expect conditional liquidity to be one of the big breakout trends of 2025,” said JR Reed, partner at DFlow investor Multicoin Capital.
Chris Chung, CEO of Solana swap app Titan, said he believes conditional liquidity can get fair traders better prices, but it could be difficult to get DEXs to accept the new market structure. DEXs wouldn’t start changing their fees until there is enough demand for contingent liquidity from the platforms where traders place orders, but those platforms will also want to see DEXs integrate this feature first.
“It’s going to be a chicken and [egg] problem,” Chung said in a text, adding that the demand question could be partly why DFlow launched its own segmenter and DEX.
Nath told me that a “handful” of major wallets and apps have inquired about integrating conditional liquidity, though he declined to say which ones.
