Why Settlement Auctions Are the Next Frontier for Fee Markets

Decouples block building from proposing, creating a neutral, cross-chain marketplace for execution. It's the first-principles re-architecture of the block production stack.\n- Enables permissionless competition among builders, breaking validator monopolies.\n- Native cross-chain intent routing via its decentralized mempool and solver network.\n- Aims to capture the full MEV supply chain, from order flow to final settlement.

Today's PBS is a bilateral, off-chain handshake between a few large builders and proposers. This creates centralization, information asymmetry, and leaks value.\n- Top 3 builders control >90% of Ethereum blocks, creating systemic risk.\n- Users and searchers are price-takers, with no direct access to the settlement auction.\n- Cross-domain arbitrage remains fragmented and inefficient, leaving value on the table.

Move the highest-value auction—for block space—on-chain and in the open. This turns settlement into a public good with verifiable outcomes.\n- Protocols like Astria and Espresso are building shared sequencing layers that bake auctions into consensus.\n- Enforces fair, open access via cryptographic proofs, not off-chain relationships.\n- Unlocks composable MEV where strategies can be built on top of a transparent settlement primitive.

Settlement auctions require immense cryptoeconomic security to be trusted with billions in transactional value. Restaking provides the slashing backbone.\n- Allows new auction protocols to bootstrap security from Ethereum's validator set.\n- Enables cryptoeconomic penalties for auction manipulation or censorship, aligning incentives.\n- Turns security into a commodity, letting auction infrastructure focus on mechanism design.

Shift from transaction execution to declarative outcome fulfillment. Users state a goal, and solvers compete in a pre-settlement auction to achieve it.\n- Abstracts complexity from users, who no longer need to manage gas or routing.\n- Aggregates liquidity and MEV opportunities across chains into a single bid for solvers.\n- Creates a solver market where efficiency is rewarded, directly linking to the final block auction.

The convergence of these layers creates a vertically integrated stack for value transfer. From user intent to cross-chain settlement, every step is an optimized auction.\n- User intent pools (UniswapX) feed into universal solver networks (SUAVE) that bid into on-chain block auctions (Shared Sequencers).\n- MEV is formalized and redistributed, funding public goods or returning to users.\n- Settlement becomes the core internet financial primitive, not a chain-specific afterthought.

Auction-based settlement can entrench dominant builders like Flashbots and Jito, creating a new layer of centralization. This risks censorship and the formation of builder cartels that can manipulate auction outcomes.

• Risk: Top 3 builders control >80% of blocks.
• Consequence: Reduced auction competitiveness, higher fees for users.
• Mitigation: Enforced builder diversity rules and cryptographic commit-reveal schemes.

Settlement layers with probabilistic finality (e.g., Ethereum L1) are vulnerable if builders can reorg recent blocks for profit. This undermines the security guarantees promised to rollups like Arbitrum and Optimism.

• Attack Vector: Builder withholds a block to mine a more profitable alternative.
• Impact: Breaks ~12s finality assumption, causing chain instability.
• Solution: Single-slot finality or slashing conditions for equivocation.

Settlement auctions that finalize cross-chain bundles (e.g., via LayerZero, Axelar) create a single point of failure for oracle price feeds. A malicious builder can extract value by manipulating the settlement state that multiple chains depend on.

• Target: DeFi protocols using the settlement layer as a price oracle.
• Extraction: $M+ flash loan attacks across connected chains.
• Defense: Decentralized oracle networks (Chainlink) with multi-settlement attestations.

Even with Proposer-Builder Separation (PBS), validators can collude with builders via side channels to bypass the auction, capturing >99% of MEV. This renders the public auction meaningless and re-centralizes value capture.

• Mechanism: Off-chain agreements and private mempools like Flashbots Protect.
• Result: Public searchers and users are priced out.
• Countermeasure: Enshrined PBS with cryptographic commitments at the protocol level.

Competing settlement layers (EigenLayer, Espresso) fragment liquidity and consensus security. A rollup's state may be finalized on one chain but not another, causing settlement failures for cross-chain intents routed through UniswapX or Across.

• Symptom: Intent resolution delays or reversals.
• Cost: Lost user funds and broken composability.
• Answer: Shared security models and standardized settlement proofs.

A centralized builder winning a majority of auctions becomes a regulated financial entity. Jurisdictions can force censorship (e.g., OFAC compliance), transforming a decentralized settlement layer into a permissioned one. This is the existential risk for base layer neutrality.

• Precedent: Tornado Cash sanctions applied to relayers.
• Outcome: Protocol-level censorship enforced via builder policy.
• Protection: Credible neutrality via decentralized builder sets and anti-censorship slashing.

Traditional priority gas auctions (PGAs) are inefficient, leaking value to searchers and validators while creating network congestion.\n- Value Capture: Builders/Proposers capture only a fraction of total MEV.\n- Network Externalities: PGAs cause gas price spikes and latency for all users.\n- Opaque Markets: Searchers operate in dark pools, obscuring true transaction value.

Separate block building from proposing, creating a competitive auction for the right to fill a slot. This is the foundational model.\n- Efficiency: Proposer receives the highest bid for their slot rights.\n- Specialization: Builders compete on sophisticated bundle construction (e.g., arbitrage, liquidations).\n- Transparency: Auction outcomes are visible on-chain, reducing opaque deals.

Extend the auction model beyond a single chain to coordinate settlement across rollups and L1s. This unlocks intent-based architectures.\n- Unified Liquidity: Users express a desired outcome; solvers compete across domains to fulfill it cheapest/fastest.\n- Composability: Enables applications like UniswapX and CowSwap that are chain-agnostic.\n- Infrastructure Play: New primitives for solvers, sequencers, and bridges like LayerZero.

Winning builders will own the full stack: searcher relationships, proprietary order flow, and high-performance execution.\n- Order Flow is King: Direct integration with major dApps (e.g., Aave, Compound) provides a durable advantage.\n- Execution Latency: Sub-millisecond advantages in Flashbots MEV-Boost relays translate to winning bids.\n- Data Moats: Historical MEV pattern analysis informs better bundle construction.

Auction efficiency creates natural economies of scale, leading to builder/relay centralization. This is the systemic trade-off.\n- Relay Trust: Validators must trust a centralized relay not to censor transactions or steal bids.\n- OFAC Compliance: Dominant builders could be forced to filter transactions, breaking credible neutrality.\n- Protocol Response: Ethereum's PBS (Proposer-Builder Separation) is a long-term, in-protocol mitigation.

Settlement auctions are the enabling layer for the intent-centric future. Invest in solvers, cross-chain messaging, and secure execution layers.\n- Solver Networks: The "Google Search" for cross-domain transaction routing.\n- Intent Standards: Protocols that standardize user expression (e.g., UniswapX orders).\n- Verification Layers: Zero-knowledge proofs for trust-minimized cross-domain settlement.