Former Solana Executive Tackles DeFi's Latency Issue with a Lesson from Wall Street

Austin Federa, the ex-head of strategy at the Solana Foundation, left his position in 2024 to address the perceived unfairness in the cryptocurrency trading landscape. Now, his company DoubleZero claims to have a solution. The goal is to eliminate the advantage of being physically closer to an exchange's servers, which can result in faster trade execution. DoubleZero's private fiber network aims to minimize latency and create a more equitable environment for traders, even if regulators and traders are not yet demanding it. According to Federa, the issue stems from the conflation of decentralized and distributed systems in crypto. While DeFi protocols are decentralized due to their open-source nature and permissionless validation, the physical location of servers can still provide an unfair advantage. For instance, traders based in Tokyo can enjoy a 200-millisecond advantage over their international counterparts on platforms like Hyperliquid. This problem is not new, as traditional finance has already dealt with it. The New York Stock Exchange, for example, has implemented cable-length equalization to ensure fairness. DoubleZero's solution involves timestamping orders across global entry points, allowing for a fair sequence of trades. The challenge lies not only in speed but also in verifiability, as traders need to distinguish between ordinary network congestion and potential manipulation. DoubleZero's managed network with deterministic latency makes it possible to prove the fairness of trade execution. While physics still applies, and a New York trading desk cannot outrun a competitor in a closer region, the gap in latency shrinks, and more importantly, the variance in latency decreases. Traders benefit from predictable latency, a property that high-frequency trading firms value in traditional markets. Federa argues that crypto is misinterpreting what makes traditional markets fair, emphasizing that regulators are not the primary drivers of fairness. Instead, exchanges themselves prioritize fairness because their business depends on it. If a major venue decides that fairness is a competitive advantage worth investing in, DeFi's latency problem may be solved without waiting for regulatory intervention. The next decade will test whether the crypto industry is willing to build distributed systems where the advantage is not based on server location.