Overview

Essentially, Transaction Chaining adds another vertical where UTXOs, instead of having to be bundled and ordered by batchers off-chain (which can lead to manipulation), are simply ordered virtually in a “first-come-first-served” manner. The Transaction Chain is created and enforced in a publicly visible, immutable, and decentralized way. As a result, instead of limiting who can consume which UTXOs, Transaction Chaining allows anyone to do so by having a system for consuming UTXOs that haven’t yet made it on-chain, essentially creating a virtual chain of transactions without the need for batching them.

We say that Transaction Chaining “adds another vertical”, because it allows for much lower latency in the processing of orders. This means that the application optimistically assumes that orders will make it on-chain, and if they don’t, then they are simply reverted without a loss of funds. Therefore, Transaction Chaining leads to a higher degree of throughput that would be otherwise possible, which can be further augmented with Input Endorsers.

The first step in creating a tx chain is transaction submission to the mempool which verifies its correctness. Once this happens a users signature is now associated with the state of a particular UTXO*. If this UTXO changes the transaction will no longer execute. Given that the transaction may only be minted if the unique, unchanged UTXO is present in the input, a clear chain of dependencies between transactions is formed. This is immutable. A user gets exactly what they ordered or the transaction is not minted.

Our partners at Liqwid Finance recently implemented Transaction Chaining themselves as well in order to help them scale their batching system. Wallets such as Typhoon have made use of Transaction Chaining too, allowing users to spend funds that are yet to be confirmed on the chain and are sitting in the mempool, which saves users time and allows them to do more transactions without having to wait for every transaction to get confirmed.

There are many applications and use cases for Transaction Chaining. In Optim Finance’s upcoming Liquidity Bonds, Transaction Chaining will be utilized to enable a new use case: the chaining of pooled funds through Pool Transaction Chaining.