Why Alpha Dies at the Interface

Abstract

In modern financial systems, alpha rarely dies in the model. It dies at the interface. The majority of profitable strategies fail not due to incorrect assumptions, but because the pathway between decision and execution is obstructed by latency, abstraction, and loss of control. This paper examines the interface layer wallets, bridges, RPCs, and user-facing execution paths as the primary site of alpha decay. We argue that unless execution interfaces are treated as first-class system components, all upstream intelligence is systematically neutralized.

1. Where Alpha Is Supposed to Live

Alpha is traditionally attributed to:

• Superior information

• Better models

• Faster reaction

This framing assumes that once a decision is made, execution follows. It does not.

In distributed systems, the gap between "Decision" and "Transaction" is not empty space; it is a hostile environment.

2. The Interface as a Lossy Boundary

Every interface introduces loss. In onchain systems, interfaces include:

• Wallets & Signing flows

• RPC endpoints

• Bridges

• Sequencer submission layers

Each step adds delay, uncertainty, ordering ambiguity, and external dependency. By the time execution occurs, the market state has already shifted. Alpha decays before it touches the chain.

3. Abstraction Is the Enemy of Determinism

Interfaces exist to abstract complexity. But abstraction removes control.

• A wallet does not guarantee inclusion time or ordering position.

• A bridge does not guarantee arrival window or price continuity.

Interfaces promise usability. Markets demand determinism.

These goals are incompatible.

4. Execution Collapse Under Stress

Under normal conditions, interfaces appear sufficient.

Under stress:

• Wallets stall.

• RPCs throttle.

• Bridges freeze.

• Queues form.

This is not accidental. Interfaces are optimized for average users, not adverse conditions. Alpha is generated precisely when conditions are adverse. Relying on retail infrastructure during a crash is a guarantee of failure.

5. Alpha Is Time-Sensitive, Interfaces Are Not

Alpha exists inside narrow temporal windows ($t < 100ms$).

Interfaces operate on human timescales ($t > 1s$): confirmation dialogs, retry logic, fallback routing.

By the time a human-facing interface completes, the window has closed. This is why backtests succeed, simulations succeed, but production fails. The interface cannot keep up with the market it intermediates.

6. The False Separation of Research and Execution

The industry maintains a convenient fiction: "Research produces alpha. Execution applies it."

This separation is artificial. Execution constraints shape which strategies are even viable. A strategy that ignores its execution surface is invalid by construction.

7. Alpha Requires Embedded Execution

High-performance systems collapse the boundary.

Execution is:

• Pre-authorized

• Pre-positioned

• Automated

• Local

There is no "submit" step. There is no "confirm" step. Decision and execution occur inside the same control domain. This is not UX optimization. This is survival architecture.

8. The Interface Tax

Every interface extracts a tax:

1. Temporal Tax: Latency added by hops.

2. Informational Tax: Signaling intent to intermediaries.

3. Probabilistic Tax: Uncertainty of inclusion.

This tax compounds. Most strategies are profitable before interface costs. Most are unprofitable after. Markets do not forgive interface inefficiency.

9. Why Institutional Systems Bypass Interfaces

Institutions do not rely on wallets. They build:

• Direct RPC paths

• Privileged access

• Co-located infrastructure

• Internal execution engines

Retail systems cannot do this. This asymmetry explains why strategies leak, spreads compress, and users underperform. Alpha migrates to those who eliminate the interface.

10. Implications for System Design

Any system that treats interfaces as neutral, prioritizes usability over control, or externalizes execution responsibility cannot sustain alpha.

Execution surfaces must be deterministic, minimal, and tightly coupled to capital. Anything else is an alpha sink.

Core Finding

Alpha does not fail because models are wrong.

It fails because interfaces delay, distort, and dilute execution.

In distributed financial systems, the interface is the battlefield. Those who control it retain alpha. Those who do not watch it evaporate.