Why On-Chain Auctions Degenerate into MEV Fests

Sealed-bid auctions devolve into public gas price wars. The winning bid is public in the mempool, triggering a PGA (Priority Gas Auction) where searchers outbid each other, burning value.

• Result: Up to 90%+ of the auction's value can be extracted as gas fees to validators.
• Example: NFT mint allowlist spots, where the right to mint is auctioned on-chain.

Its first-come-first-served liquidity provision and AMM design created a predictable, extractable pattern. Searchers monitor the mempool for large swaps and sandwich attack the user.

• Result: An estimated $1B+ extracted from users since launch.
• Catalyst: The public mempool and deterministic execution made it a solved game for bots.

Protocols like MakerDAO and Compound rely on periodic oracle price updates. The update transaction is public, allowing searchers to liquidate positions in the same block before the update is finalized.

• Result: Creates a zero-sum game between keepers and users, disincentivizing honest updating.
• Solution Path: TWAPs (Time-Weighted Average Prices) or SSLE (Secure Sequencing Enclaves) like OEV Network.

These protocols move price discovery off-chain via a batch auction solved by a solver network. Users submit intents, solvers compete to find the best netting solution, and the winning bundle is settled on-chain.

• Result: MEV is internalized as better prices for users. No more sandwich attacks.
• Key Insight: Competition shifts from gas wars to optimization, aligning searcher and user incentives.

In PoS systems, the entity that wins the block-building rights controls transaction ordering. This creates a natural monopoly for ~$1M/day in MEV. Projects like EigenLayer and MEV-Share attempt to democratize this via proposer-builder separation (PBS).

• Risk: Centralization of block building into a few entities like Flashbots and Jito Labs.
• Metric: Top 3 builders often control >80% of Ethereum blocks.

Bridges like LayerZero and Wormhole rely on off-chain oracle/relayer networks to attest to events. The latency between source and destination chains creates an arbitrage window for generalized extractors.

• Mechanism: Relayer's attestation transaction is frontrun on the destination chain.
• Emerging Fix: Succinct attestations and shared sequencing layers (e.g., Espresso, Astria) to unify state.

Native on-chain auctions broadcast intent to the public mempool, creating a predictable execution race. This invites frontrunning, sandwich attacks, and time-bandit arbitrage, where value is extracted from users instead of the counterparty.\n- Result: >90% of DEX volume on major chains is vulnerable.\n- Cost: Users pay ~50-200 bps in implicit MEV tax on swaps.

Architectures like SUAVE, Flashbots Protect, and CowSwap's solver network separate intent expression from execution. User transactions are encrypted or routed privately to a trusted sequencer, breaking the predictable race condition.\n- Key Benefit: Eliminates frontrunning and sandwich attacks at the source.\n- Trade-off: Introduces trust assumptions in the sequencer or relay network.

Unrestricted access to pending state allows searchers to craft multi-block, multi-contract bundles that exploit predictable price impacts. Protocols like Uniswap become liquidity sources for complex MEV strategies, not just user swaps.\n- Result: Liquidity providers earn less due to toxic order flow.\n- Scale: MEV extraction totals $1B+ annually across Ethereum and L2s.

Shift from transaction-based to intent-based systems (e.g., UniswapX, Across) where users specify a desired outcome, not an execution path. Combine with PBS (Ethereum's roadmap) to separate block building from proposing, creating a competitive market for execution quality.\n- Key Benefit: Captures cross-domain liquidity and aggregates user flow.\n- Outcome: MEV is internalized and redistributed as better prices or protocol revenue.

Protocols like NFT marketplaces or lending liquidations that run their own on-chain auctions (e.g., English, Dutch) create predictable, high-value transactions. This attracts specialized bots, leading to centralized block building and censorship risks as searchers pay premiums to win.\n- Result: Retail users are consistently outbid.\n- Efficiency Loss: Auction revenue leaks to searchers, not the protocol.

Delegate price discovery to a professionalized off-chain network (e.g., Chainlink Auctions, OpenSea's Seaport 1.6). Solvers compete privately, and only the winning settlement bundle is submitted on-chain. This mirrors the CowSwap model for DeFi.\n- Key Benefit: Maximizes protocol revenue and guarantees fair, permissionless access.\n- Requirement: Robust cryptoeconomic security and slashing for solver misbehavior.