Former Solana Executive Tackles DeFi Inequality with Wall Street-Inspired Solution

Austin Federa, formerly the head of strategy at the Solana Foundation, left his position in 2024 to address the unfairness he perceived in the cryptocurrency trading landscape. Eighteen months later, his company, DoubleZero, claims to have found a solution. The goal of DoubleZero is to eliminate the competitive advantage that traders gain from being physically closer to an exchange's servers. By utilizing a private fiber network, the company seeks to reduce latency, which is the time it takes for a trade to reach the platform from a trader's computer, thereby creating a more equitable environment. This is despite the fact that neither regulators nor traders are currently demanding such a change. According to Federa, the issue stems from the fact that the crypto industry often confuses decentralized systems with distributed ones. Although DeFi protocols are decentralized due to their open-source code and permissionless validator sets, the laws of physics cause validators to cluster in the same data centers when milliseconds can determine the outcome of a trade. For instance, traders based in Tokyo who use platforms like Hyperliquid have a 200-millisecond advantage over their international competitors. Federa explained in an interview with CoinDesk that "Hyperliquid may appear to be a decentralized system from a governance and user perspective, but it is not a distributed system. It is still co-located in the same environment, even if it is operated by multiple different entities." This problem is not unique to the crypto industry, as traditional finance has already faced similar challenges. Over a decade ago, the New York Stock Exchange developed its Mahwah, New Jersey data center, which featured cable-length equalization to within a nanosecond. This was not done to comply with regulatory requirements, but rather because asymmetric access was detrimental to business. Essentially, traders who felt disadvantaged would choose to route their orders through other platforms. DoubleZero's solution involves timestamping. The network aggregates private bandwidth from operators to transmit blockchain data over dedicated links, providing venues with the tools to timestamp orders across global entry points and reconstruct a fair sequence. This approach is similar to the cable equalization used by the NYSE. The challenge lies not only in achieving speed but also in ensuring verifiability. When a trader's order is delayed on a venue using the public internet, it is difficult to determine whether the delay is due to ordinary network congestion or something more intentional. Federa pointed out that "it's hard to distinguish between the public internet dropping packets all the time and someone intentionally excluding a block after seeing a transaction." DoubleZero's managed network with deterministic latency makes it possible to prove the distinction. While physics still applies, and a New York trading desk using DoubleZero to access Hyperliquid in Tokyo will not be able to outrun a competitor in a closer location, the gap and variance are reduced. Traders benefit not only from lower latency but also from predictable latency, which is a property that high-frequency trading firms are willing to pay for in traditional markets. Federa's main argument is that the crypto industry has misinterpreted what makes traditional markets fair. Although regulators play a role, they are not the primary drivers. In traditional markets, exchanges themselves are responsible for ensuring fairness, as their business depends on it. Venues that gain a reputation for having asymmetric access lose volume to those that do not. If Federa is correct, the latency issue in DeFi is not dependent on regulatory action but rather on the moment a major venue decides that fairness is a competitive advantage worth investing in. Over the past decade, the crypto industry has demonstrated its ability to build decentralized systems. The next decade will test whether anyone is willing to build distributed systems, where the advantage is not based on the location of a server in Tokyo. As Federa stated, "No one wants to trade on an unfair platform."