On-Chain RFQ Systems Championed for Enhanced DeFi Transparency and Competition

London, UK – Nathan Worsley, a prominent figure in decentralized finance (DeFi) and an MEV engineer, has ignited a debate within the crypto community by strongly advocating for "fully on-chain Request for Quote (RFQ)" systems over traditional Central Limit Order Books (CLOBs). Worsley asserts that on-chain RFQs offer superior transparency, permissionlessness, and foster greater competition, ultimately leading to better execution for users.

In a recent tweet, Worsley criticized CLOBs, stating, > "You fundamentally misunderstood what a fully on-chain RFQ entails and are arguing against a strawman. Fully on-chain RFQs are more transparent and permissionless than CLOBs in every way which matters to user execution, and invite more competition, especially as capital/liquidity becomes commoditised." He further elaborated that in the current system, market makers (MMs) keep their "actual willingness to pay 100% private," turning CLOBs into "poker games" among MMs rather than a transparent conversation with users.

On-chain RFQ systems operate by allowing a buyer or seller to request quotes directly from one or multiple liquidity providers, typically professional market makers. Unlike AMMs (Automated Market Makers) or CLOBs, where orders are publicly posted or automatically priced, RFQ platforms like Bebop and 0x Protocol facilitate direct, often off-chain, communication for pricing, with on-chain settlement. This model is lauded for offering guaranteed prices without unpredictable slippage and often includes gas fees within the quoted price, simplifying the user experience.

A significant advantage highlighted by proponents of on-chain RFQs is their inherent protection against Maximal Extractable Value (MEV) attacks, such as "sandwich attacks." In such attacks, malicious bots front-run and back-run user trades on public blockchains, profiting from price manipulation. Because RFQ quotes are specific to a user and often settled atomically, they are less susceptible to these predatory practices. Worsley underscored this point by drawing an analogy to Ethereum's MEV landscape: > "If your argument is true then by analogy Ethereum should remove private auctions for MEV and go back to the previous state of public gas auctions." This refers to the shift from public mempools (where transactions are visible and can be front-run) to private transaction bundles (like those facilitated by Flashbots) that offer MEV protection, mirroring the transparency benefits RFQs bring over CLOBs.

Worsley also argued that on-chain RFQs democratize participation, stating, > "And it’s far more of a permissionless system if you commodify liquidity and separate liquidity provision from alpha/signals. It’s kind of absurd to say the current system is permissionless when you need millions of dollars just to play. A fully on-chain RFQ allows anyone to participate, even people with $0." This contrasts with the high capital requirements often associated with becoming a competitive market maker on CLOBs.

While CLOBs remain a dominant structure in traditional finance and some DeFi applications, the debate over their suitability for a truly transparent and permissionless decentralized ecosystem continues. The rise of on-chain RFQ systems represents an evolving approach to liquidity provision and trade execution, aiming to address some of the long-standing challenges in decentralized trading.