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April 12, 2022

Investment in bloXroute

bloXroute is a fast block propagation network and a critical piece of DeFi market infrastructure. With $1.5b average daily volume, bloXroute has established itself as a leading player with 40% market share in DeFi trading volume.

Blockchains are a globally distributed public ledger consisting of thousands of nodes. Whenever a new block is created by a node, it is gossiped to other nodes over the internet. Since the nodes are located all over the world, it takes several seconds (depending on the blockchain) for a new block to be propagated throughout the network. Instead of relying on the blockchain-native gossip protocol, bloXroute is connecting to the blockchain nodes directly. As soon as there is a new block created by a bloXroute-connected node, in addition to gossiping it to the blockchain network, the node also sends the information directly to bloXroute.

On average, bloXroute customers receive blocks one second earlier then they would otherwise see via the gossip protocol. Having this time advantage opens 30% more trading opportunities and enables traders to react faster. Speed is critical to interpreting transactions in real-time as well as executing on order flow.  Therefore, faster block propagation infrastructure is mandatory to be competitive when trading in DeFi.

bloXroute is a market leader with 40% share of decentralized exchange trading and $1.5 billion average daily trading volume across Ethereum, BSC and Polygon. Initially, there were limited use cases for a block distribution network (BDN).  This changed with the rise of decentralized exchanges and lending platforms. DEX trading volumes increased from essentially nothing 18 months ago to an astonishing $100b per month.

Source: Dune Analytics

Having many decentralized exchanges in the ecosystem, opens an arbitrage opportunity on each new block. As a result, there is a potential for risk-free profit to be generated if a trader can execute the transaction fast enough. Generating profit by reordering transactions in the block is known as maximum extractable value – MEV. Since the rise of decentralized exchanges, there was approximately $600m generated on Ethereum.

Source: Flashbots

At RBF, we are expecting annualized DeFi trading volume to grow 40% per year, targeting $550b monthly by the end of 2025. At the same market share as today, bloXrout would be driving volumes of $7.3b per day, which is 4.9x from now. Market infrastructure companies like Tower Research Capital allow access to the trading infrastructure for estimated 50% of the trading profits. Assuming there is an average profit per trade of 10bps on each DEX trade. bloXroute is on clear path to generate $1.3b annual revenue.  And we think there is additional scope for bloXroute to win over additional market share for several reasons:

  • The rockstar team, lead by Uri Klarman, has been refining the platform for the last five years, a significant head start over any new market entrants,
  • It is expanding to other chains, including Solana, and
  • There is potential for additional large clients beyond already established key players.

RBF invested $5 million in the recent bloXroute Series B round, which was led by Softbank Vision Fund 2, and also included Dragonfly, Jane Street, Lightspeed, ParaFi and other impressive investors. We are very happy to be part of the bloXroute family and help Uri, Eyal and Aleksander in building the best DeFi trading infrastructure.