1/ One of our favorite discontinued "on-chain" strategies was trading on RFQs. We were literally taking candy from babies, but the babies were other market makers.
We only discontinued because we have high ethical standards. More on that later.
1/ A thing I keep hearing more and more is that RFQs are always better for swappers. This is wrong
We can all agree that the RFQ provider has a free option. The value of that option comes at the expense of someone. Most people think it comes entirely from the passive LPs. Not so
2/ For context: back when we were doing this, the swapper got a last look on the quote on most RFQ protocols. User requests quote -> MM responds with a signed quote -> user broadcasts the quote in a tx. The quote has a timeout, usually ~1 min since blocks are slow.
3/ Usually the quotes were bad by 5bps, iirc. So the obvious strategy is pick them off when price moves. A simple python script doing this immediately printed good money. Took like a day to write and the first iteration worked.
4/ It was pretty funny because we could see the ID of each market maker quoting, and the adjustments they made. Some quoted >$100k USD initially but started sizing down. Others would fade. Others would blacklist after a few quotes. But this stuff is all easy to work around.
5/ My favorite MM adjustment was that they would sometimes MEV our transaction to cancel the quote. Scorched earth I guess, we both paid gas. Next step would've been to send our tx through flashbots, but we didn't pursue the whole thing much further.
6/ So why did we stop? Every trade we make provides a service to the market. E.g. both makers and takers on CEXs are crucial (maybe a thread on that later). But with taking on RFQs the only value we were providing is proving that RFQs are dumb. RFQ only works in tradfi b/c of KYC
7/ Picking off competitors is fun but we sunset the proof of concept. It was fun to get a proof of concept working so quickly though. We also got inspired and started building our own dex, after seeing how many silly ideas are out there in crypto.