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XGA Auction Platform

Mechanisms make the market

XGA is a platform that is comprised of an Optimism based Rollup, a smart contract protocol, an Ethereum consensus layer sidecar and a domain-specific engine called Open Games for proving/developing (game-specific) mechanisms.

  • Preconfirmations without CL or EL changes
  • Searchers no longer need to vertically integrate with Builders, leading to a more competitive MEV market for the benefit of Validator returns.
  • Unambiguously earns more for Validators than running MEV Boost alone.

Platform Overview, including Auction design, Rollup and Relay details.

Extending Auction Design

XGA is designed to be a flexible and extensible platform for the design of new auction mechanisms. Some of the benefits include:

  1. An enhanced uniform price auction
  2. A Bifurcated Block Structure (splitting the block into halves)
  3. Elastic Supply Scheduling
  4. Option to use Contract based bidding. (RPC Supported as well).
  5. Backwards compatible with MEV-Boost
  6. No need for Restaking or Depositing of Staked Ether for Validators to participate

Block Structure

We divide a block in two parts: ⍺-blockspace and β-blockspace

  • ⍺-blockspace is a very time-sensitive kind of priority transaction. These transactions often come in last.

  • β-blockspace however can be considered non-priority sensitive, meaning it is not very time sensitive, hence can be priced differently.

⍺-blockspace

  • ⍺-blockspace - represents the top part of the blockspace. Economically, this is where competitive searchers want to place their transactions (e.g. for arbitrages etc.).1

β-blockspace

  • β-blockspace - represents the rest of the blockspace. Economically, this is where low-priority transactions - direct transfers, low volume swaps, some kind of intents, etc. - would go. The rationale for this is simple: above and below represent two very different markets: The first serves strategic actors, whereas the second serves 'everyone else' - people not interested in speculation that just want to transact, e.g., to pay for stuff.2

Relay Mechanics and MEV Boost compatibility

The Auction platform uses the SecureRPC.com relay, in which permissioned validator sets configure the relay endpoint for partial privileged access.3 for version 1. The access is only partially privileged in that the validator can still receive bids from other relays. In the event that the SecureRPC relay does not respond within a certain stall time, the validator can accept external bids. This eliminates the risk of potentially loosing money should the relay and validator experience a service disruption: the existing MEV Boost Auction always takes place.

The relay coordinates with registered validators so that it can be queried; we will know 2 epochs in advance in which slots we will mint a block. Therefore, we can sell a proportion of blockspace 2 epochs in advance, enabling a forward call market for β-blockspace.

Elastic Supply Schedule

Elastic Supply Schedule: Breaking away from the rigidness of a fixed supply, we're introducing elasticity. When prices dip low, we'll strategically limit the availability of options. This dynamic approach ensures a balance between supply and demand, maintaining value and interest.

Revamped Tie-Breaking Rule: In the world of auctions, ties are inevitable. Our approach is different. We're moving away from the conventional method that prioritizes higher marginal bids. Instead, we're implementing a novel rule that intensifies competition, particularly for those crucial marginal quantities.

Why These Changes Matter

Shortcomings of the standard uniform price auction

Traditionally, with a fixed supply, there's a looming risk of plummeting prices. This phenomenon, identified by Wilson4, highlights a bidder's tendency to underbid. In multi-unit auctions, this is a critical challenge. In a uniform price auction, underbidding on the marginal unit doesn't just lower the price for that unit; it slashes the overall price you pay.

The real danger of severe under-pricing hinges on demand factors, which are often unpredictable and not easily deduced from existing data. The debate over whether discriminatory or uniform price auctions yield higher revenue remains unresolved, both theoretically (as discussed by Ausubel et al. 2011)5 and empirically.

Tie Breaking Rule

The traditional tie-breaking rule, which prioritizes higher marginal bids, is inherently flawed. It doesn't account for the strategic value of the marginal unit. This is particularly problematic in multi-unit auctions, where the marginal unit is often the most valuable.

The current rule fails to capture the true value of the marginal unit, leading to suboptimal outcomes. Due to the discrete nature of bids, it can happen that there is market-clearing price (where \(demand=supply\)).

The typical rule applied in many auctions favors high marginal bids first. We will consider an alternative that introduces more pressure at the quantity at the margin.

Elastic Supply Curve Detail

Maximum capacity is fixed, but the supply curve varies with price,

\(S:P→Q\)

Thus we have different offering quantities of options.

The supply function is designed to be initially concave, then constant at maximum capacity. This approach, theoretically supported by Licalzi6, aims to mitigate dramatic underpricing.

URL Description
eth.xga.com auction mev-boost-relay
blockscout.xga.com blockscout
rpc.xga.com mainnet RPC
op.xga.com mainnet XGA RPC
holesky-dashboard.xga.com holesky auction stash board
holesky-blockscout.xga.com holesky blockscout
holesky-op.xga.com holesky XGA RPC
holesky-eth.xga.com holesky auction mev-boost-relay
holesky-rpc.xga.com holesky RPC

Footnotes

  1. Previously this was called 'above' ↩

  2. Previously this was called 'below' ↩

  3. Exclusivity is only needed in v1, v2 eliminates this requirement. ↩

  4. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 675-689. ↩

  5. L. Ausubel and P. Cramton, “Design of a Suitable Auction Format for Competitive Sale of Alternative Energy Leases on the OCS (AE Auction Design Study, Paper 2 of 3) Multiple Factor Auction Design for Wind Rights,” 2011. Accessed: Jan. 02, 2023. [Online]. Available: https://www.boem.gov/sites/default/files/uploadedFiles/BOEM/Renewable_Energy_Program/Regulatory_Information/AusubelCramtonPaper2.pdf ↩

  6. Marco LiCalzi, 2005. "Tilting the supply schedule to enhance competition in uniform-price auctions" European Economic Review, Volume 49, Issue 1, 2005, Pages 227-250 ↩