This episode reveals how competitive block building is the next frontier for scaling Solana, directly impacting everything from validator revenue to the very design of decentralized finance.
Introduction to Harmonic and Its Mission
- Block building is the process of selecting, ordering, and packing transactions into a block that is then proposed to the network. It's a computationally intensive task that requires sophisticated infrastructure.
- Ben identifies three key stakeholders who benefit from a competitive block-building market:
- Validators: Gain access to more sophisticated block builders who can pack blocks more efficiently, increasing revenue.
- Applications: Achieve more control over how their transactions are sequenced, enabling new and more complex designs.
- Users: Receive better execution and protection from negative behaviors like sandwich attacks, as they can send transactions to trusted builders.
Ben states, "I think the best way to describe Harmonic is it's a system that not only increases revenue for validators and creates value for applications but also bridges this incentive gap between applications and users."
Harmonic vs. Jito: The Case for a Competitive Marketplace
The conversation immediately draws a comparison between Harmonic and Jito's existing block engine. Ben clarifies that while Jito's system connects validators to a single builder, Harmonic creates an open marketplace where validators can receive blocks from numerous competing builders.
- This competitive dynamic is crucial for several reasons:
- Performance: Different builders will have an edge in different scenarios, and a marketplace allows validators to select the most profitable block in any given situation.
- Innovation: Competition forces builders to innovate on features, execution quality, and sequencing, ultimately benefiting applications and users.
- Resilience: An open market avoids vendor lock-in with a single entity, promoting a more decentralized and robust infrastructure layer.
- Ben emphasizes that competition has been a key driver of Solana's success in other areas, such as DEX liquidity, and believes the block-building layer is the next logical place for this principle to be applied.
Application-Driven Block Building and Network Throughput
A core theme is the idea of applications directly influencing the block-building process. Harmonic enables this through a system where applications can declare specific sequencing rules that builders must follow.
- Builders compete not just on revenue but also on their ability to adhere to these rules and maximize throughput. This creates a direct incentive for builders to create the best possible experience for applications and their users.
- Ben, drawing from his team's experience, argues that specialized, custom schedulers consistently outperform the default schedulers in Solana clients. Harmonic provides a platform for these sophisticated builders to offer their services to the entire network.
- Strategic Implication: For investors and researchers, this signals a shift where DeFi protocols can move beyond simply submitting transactions and begin co-designing their execution environment. This could become a key competitive advantage for protocols built on Solana.
The Future of DeFi on Solana: Prop AMMs vs. Order Books
The discussion pivots to Prop AMMs (Proactive Market Makers), a concept Ben is passionate about. A Prop AMM is an advanced automated market maker that proactively updates its prices on-chain based on external oracle data, closely mimicking the behavior of traditional market makers.
- Ben argues that traditional order books (CLOBs) were designed for a zero-latency, co-located world, which doesn't exist in a globally distributed decentralized network. The speed of light itself creates a bottleneck.
- Prop AMMs solve this by running their logic on-chain, allowing them to react instantly to trades. This is a stark contrast to off-chain market makers who must read data from the network, process it, and send a new transaction back, incurring significant latency.
- He sees Solana's high throughput as the perfect environment for Prop AMMs, which require blasting a high volume of oracle updates to the chain. Harmonic's competitive marketplace is designed to scale with this demand, pushing the network toward 100k and eventually 1 million+ TPS.
Ben explains the core advantage: "When your logic is running on chain, you can react instantly, right? Because on-chain is as real time as you can get."
The Mechanics of Competitive Block Building
When asked to explain how one block builder can be more "efficient" than another, Ben describes it as an NP-hard problem—a class of computational problems for which no known efficient, optimal solution exists.
- Builders are faced with a "bag" of hundreds of thousands of transactions with varying values, conflicts, and state requirements.
- The challenge is to create the best possible approximation or heuristic to pack the most valuable and executable transactions into a block.
- Different builders will develop different strategies and approximations, leading to varied performance under different market conditions. This complexity is why having dozens of teams competing is far more effective than relying on a single builder.
Solana's Evolution: Priority Fees and the Role of Block Builders
Carlos raises a critical point about Solana's market microstructure, noting a shift where priority fees (additional fees paid by users for faster inclusion) are becoming more dominant than MEV tips from systems like Jito. He questions the need for block builders if the market is simply moving toward a pure priority-fee model.
- Ben counters that even in a priority-fee-driven world, sophisticated infrastructure is required to sift through hundreds of thousands of transactions (many of which are spam) to identify and pack the highest-paying ones efficiently.
- His core thesis is not just about capturing existing value but about "growing the pie." By enabling better application experiences and higher throughput, Harmonic aims to attract more users and protocols to Solana, which in turn generates more fees for everyone.
Harmonic's Role in Enabling New Application Designs
The conversation highlights ACE (Application Controlled Execution), a mechanism allowing applications to define specific rules for how their transactions are sequenced. This is particularly relevant for perpetual futures DEXs, which often struggle with prioritizing market maker cancel orders.
- Ben advocates for giving applications maximum optionality to experiment with different microstructures, whether it's cancel prioritization or a first-in-first-out (FIFO) model.
- Harmonic provides the infrastructure for applications to enforce these custom rules, fostering a permissionless environment for innovation in market design. This rapid, permissionless iteration is what Ben believes has allowed Solana to win on spot trading for retail.
Oracle Reliance and On-Chain Price Discovery
The discussion touches on the reliance of Prop AMMs on oracles that source prices from centralized exchanges like Binance, where most price discovery currently happens.
- Ben acknowledges this reality but sees a future where Solana's increasing throughput and volume will lead to on-chain price discovery.
- Future Trend: As more volume moves to Solana, he anticipates the emergence of sophisticated on-chain machine learning models for price prediction, leveraging the network's high throughput and composability. This presents a significant area of research and opportunity for AI-focused developers.
Aligning Incentives: Validators, Applications, and Users
- Ben addresses the inherent incentive misalignments between validators (who may seek short-term profit), applications (who need reliable execution), and users (who want fair prices).
- Harmonic positions itself as the intermediary designed to solve this misalignment. A key policy is a strict no-sandwiching rule.
- By giving applications and users tools to direct their transaction flow to compliant builders, Harmonic creates an economic penalty for validators who engage in extractive behavior. They will simply lose out on order flow and revenue.
- The model aims to grow the entire ecosystem's value, ensuring that validators are compensated for providing valuable sequencing services without harming the user experience.
Harmonic's Business Model
- Harmonic's revenue model is based on taking a small fee on tips, ACE payments, and potentially priority fees.
- Ben emphasizes that the model is only viable if Harmonic demonstrably "grows the pie." The platform must generate more total revenue for validators than they would earn otherwise.
- The value proposition is that by creating a better, more reliable environment for applications, Harmonic will attract more activity and fees to Solana, benefiting all participants, including itself.
Future Innovations on Solana
- Looking ahead, Ben is excited about innovations beyond current DEX models. He anticipates new systems that will build upon the "running logic on-chain" concept of Prop AMMs to create even more efficient market structures.
- He also points to continued progress in:
- On-chain Routers: Providing users with demonstrably better fills.
- Oracle Infrastructure: Enabling more capital to flow into DeFi.
- DePIN (Decentralized Physical Infrastructure Networks): Seeing a major opportunity in energy markets driven by the AI boom.
Conclusion
This discussion underscores that competitive, application-aware block building is a critical infrastructure layer for Solana's future growth. For investors and researchers, the key takeaway is to monitor this evolving space, as it will directly dictate network throughput, DeFi innovation, and the economic alignment between validators, applications, and users.
