Summary

MEV auction design determines how much value is captured by the protocol vs. private parties. Comparing open auctions (English, second-price) vs. sealed-bid (FPSB) shows open formats extract 14–28% more revenue. The Timeboost case study on Arbitrum illustrates ahead-of-time auction risks: early deployment created a weak-competition equilibrium where protocol MEV capture fell from 63% to 15%, which the Kairos redesign partially fixed.

Auction Format Comparison

Sealed-Bid First-Price (FPSB)

  • Bidders submit bids privately; highest bidder wins and pays their bid
  • Problem: bidders shade bids below true value to avoid “winner’s curse”; revenue is lower
  • Used by: early MEV-boost iterations, some OFA providers

Second-Price Sealed Bid (SPSB / Vickrey)

  • Bidders submit privately; highest bidder wins but pays the second-highest bid
  • Incentive-compatible: dominant strategy is to bid true value (no bid shading)
  • Higher revenue than FPSB in equilibrium (theoretically equivalent under symmetric bidders; better under asymmetry)

English Auction (Open)

  • Ascending price; bidders see current highest bid; auction ends when no one outbids
  • Revenue advantage: bidders have less information uncertainty; bid closer to true value
  • Problem: reveals information during the auction (latency-sensitive in block production)

Analysis Results (2026 study on sealed vs. open)

  • English and SPSB outperform FPSB by 14–28% in MEV revenue capture
  • Top 1% of transactions account for ~68% of total MEV revenue — auction design most impacts these high-value events
  • Foregone revenue from using FPSB vs. optimal format: estimated $10–18M over the study period

Implication for PBS: MEV-Boost uses a variant of FPSB (builders submit best block; highest wins). Switching to a second-price or open format would capture significantly more value for proposers — but the current architecture makes this difficult to implement without revealing block contents.

Timeboost: Ahead-of-Time Allocation

Timeboost is Arbitrum’s MEV ordering mechanism: users bid in advance for transaction ordering priority within each block. A time boost auction allocates priority rights for a future period.

Original Design (Phase 1)

  • Bids submitted in advance (before the relevant period)
  • Winner gets guaranteed ordering priority
  • Intent: predictable MEV extraction; reduced latency games

The Ahead-of-Time Problem

The original Timeboost design created a weak-competition equilibrium:

  1. Winner of the advance auction knew they had priority → stopped competing aggressively
  2. Other bidders knew the winner had priority → reduced their bids
  3. Result: protocol MEV capture fell from 63% to 15% after adoption
  4. The winner essentially “locked in” ordering rights cheaply due to lack of real-time competition

This is the classic problem of ahead-of-time commitment in auctions: when you commit to a winner before they know the exact value of what they’re winning, you get worse price discovery than a real-time auction.

Kairos Redesign

Kairos modified Timeboost to address the weak-competition equilibrium:

  • Introduced real-time components: the advance auction winner still gets priority, but must compete at execution time for the highest-value opportunities
  • Added per-transaction bidding alongside the advance auction
  • Result: protocol MEV capture recovered from 15% toward competitive levels
  • The advance auction still exists but no longer shields the winner from real-time competition

Lessons

  1. Ahead-of-time auctions underperform for MEV because MEV value is only known at the time of execution (CEX-DEX arb, liquidations are time-sensitive)
  2. Commitment reduces competition: once someone has advance rights, others don’t compete as hard
  3. Hybrid designs (advance auction + real-time bidding) can capture benefits of both predictability and competitive pricing
  4. Protocol capture ≠ user protection: higher protocol MEV capture doesn’t directly help users; it just changes who captures the MEV

MEV Auction Formats in Production (2026)

SystemFormatProtocol captureNotes
Ethereum MEV-BoostFPSB (implicit)Proposer-sideRelay can adjust bids
Arbitrum Timeboost v1Ahead-of-timeFell to 15%Weak competition problem
Arbitrum KairosHybrid~40-50%Real-time + advance
CoW ProtocolBatch auctionSolver-sideNo ordering MEV
SUAVE (future)DistributedTBDGlobal unified auction

Open MEV Auction (Sealed vs. Open Relay Bids)

An open MEV auction proposal for PBS would have relays reveal bids progressively rather than in sealed fashion. The challenge: revealing bid amounts lets builders game the auction (submit a bid just above the current highest).

Alternative: multi-relay coordination (discussed at Cannes workshop) — relays share information about bids they’ve seen without revealing specific amounts. This reduces information asymmetry while preventing outright gaming.

Builder Auction and the Latency Race

The current MEV-Boost builder auction has a fundamental latency problem: builders who submit bids later (with more market information) win more often. This creates timing games and geographic advantages.

Options:

  1. ePBS commit-reveal: builder commits at ~4s, reveals at ~8s; eliminates last-second games
  2. Sub-slot execution: frequent checkpoints reduce the value of late information
  3. Sealed bid with early deadline: enforce hard bid deadlines; reduce advantage of delay

Key Sources

  • When Ahead-of-Time Allocation Fails: The Transition to Kairos (2026) — Timeboost case study; 63%→15% protocol capture
  • Three Years of PBS (Dec 2025) — sealed vs. open auction comparison; 14–28% uplift; $10–18M foregone; top 1% = 68% of MEV