Relayer Incentives

Relayers compete in fee auctions to have their transaction bundles included in the next block. Users submit bids (often via a Priority Gas Auction model) to incentivize relayers to prioritize their transactions, creating a market-driven fee mechanism. This is common in systems like Flashbots' MEV-Boost.

In rollup architectures, the designated sequencer earns fees for its services. These fees compensate the sequencer for:

• L1 settlement costs: Paying for data publication and proof verification on the base layer (e.g., Ethereum).
• Operating overhead: Maintaining infrastructure for fast transaction processing and state updates.

Relayers can capture and redistribute MEV—value extracted from transaction ordering. Incentive models include:

• MEV smoothing: Distributing captured MEV back to users or stakers.
• Proposer-Builder Separation (PBS): Builders create profitable blocks and bid for inclusion, with fees going to block proposers (validators). This aligns economic incentives while mitigating negative MEV.

To ensure honest behavior, relayers (or sequencers) are often required to stake a bond. Slashing conditions penalize malicious actions like:

• Censorship: Deliberately excluding valid transactions.
• Data withholding: Failing to publish transaction data to the base layer.
• Double-signing: Proposing conflicting blocks or states.

Protocols may use native tokens to bootstrap and sustain relayer networks. Incentives include:

• Inflation rewards: Issuing new tokens to active, honest relayers.
• Retroactive funding: Grant programs (like Optimism's RetroPGF) that reward contributors for past work that added value to the ecosystem.
• Fee token accrual: Earning a portion of transaction fees paid in the protocol's token.

Non-monetary incentives based on reputation scores influence relayer selection and trust. A high reputation, earned through consistent reliability and low latency, can lead to:

• Preferred status in peer-to-peer networks.
• Higher delegation from users or stakers.
• Reduced bond requirements due to proven trustworthiness.

The native protocol mints new tokens to pay relayers for providing a baseline service, ensuring liveness even during low fee periods. This model is foundational to Proof-of-Stake consensus, where validators (acting as relayers) earn block rewards. Also used by cross-chain bridges like Axelar.

Relayers must stake (bond) the network's native tokens as collateral. They earn fees for good behavior but face slashing penalties for censorship, downtime, or malicious actions. This aligns economic incentives with network security. Used by Cosmos IBC relayers and EigenLayer AVSs.

Users voluntarily add tips or grants to their transactions to incentivize relayers. This model is common in peer-to-peer networks like the Lightning Network for routing payments, or in Gitcoin Grants for funding public goods relay infrastructure.

Relayers operating cross-chain bridges or general message passing systems earn fees for verifying and forwarding messages between blockchains. Fees are typically paid in the source chain's gas token or the bridge's native token. Examples include LayerZero's Oracle and Relayer network and Wormhole guardians.

A competitive bidding model where users attach a priority fee to their transaction. Relayers (or validators) are incentivized to include transactions with the highest fees first, creating a fee market. This is the primary incentive mechanism in networks like Ethereum, where validators earn the sum of priority fees and block rewards.

Relayers can earn substantial revenue by optimizing the order of transactions within a block to capture Maximal Extractable Value (MEV). Protocols like Flashbots create a separate auction channel for MEV opportunities, where searchers bid for favorable transaction ordering. This provides a major incentive beyond base gas fees.

In cross-chain bridges and messaging protocols (e.g., Axelar, Wormhole), relayers are paid fees for attesting to and transmitting messages between blockchains. Fees are typically paid in the native token of the destination chain or the protocol's governance token, incentivizing reliable message delivery and security.

Proof-of-Stake relayers (often called validators) are required to stake the network's native token as collateral. They earn block rewards and transaction fees for honest participation. Slashing penalties disincentivize malicious behavior like double-signing or downtime, aligning relayers with network security.

A design that separates the roles of block building (selecting transactions) and block proposing (adding to chain). Specialized builders compete to create the most profitable block bundles for proposers via an auction. This formalizes MEV markets and can provide more predictable and transparent relayer incentives.

Some dApps or L2 rollups directly subsidize relayers to process their users' transactions, abstracting gas costs. For example, a social media dApp might pay relayers to bundle and post user actions, removing the need for users to hold gas tokens. This creates a sponsored transaction model.

Relayers earn fees from users who bid for transaction inclusion and ordering. This creates a fee market where users compete for priority, similar to gas auctions on Ethereum. The design of this market (e.g., first-price vs. second-price auctions) critically influences MEV extraction, network congestion, and the predictability of user costs.

Incentive structures determine who can become a relayer. A permissionless, bond-based model with slashing encourages decentralization. Conversely, a permissioned or low-barrier model can lead to centralization risks. The security of the system is only as strong as the economic security of its least honest relayer, making stake sizing and slashing conditions paramount.

The right to order transactions is a valuable privilege that enables Maximal Extractable Value (MEV). Relayer incentives must align the relayer's profit motive with chain integrity. Common designs include:

• MEV redistribution (e.g., via auctions like in Flashbots)
• MEV burn to neutralize the negative externalities
• Commit-Reveal schemes to mitigate frontrunning

Incentives create a tension between liveness (transactions are processed) and censorship resistance (all valid transactions can be processed). A relayer may ignore low-fee transactions, harming censorship resistance. Solutions include credible neutrality rules, permissionless inclusion lists, or protocol-enforced minimum service levels enforced by slashing.

To participate, relayers often post a stake or bond (in the native token or ETH). This bond can be slashed (destroyed) for malicious behavior like withholding transactions or incorrect ordering. The size of the required bond is a key security parameter, acting as a disincentive for attacks. Restaking protocols like EigenLayer can be used to bootstrap this economic security.

For relayers operating in cross-chain protocols (e.g., IBC, LayerZero, Axelar), incentives must account for multi-chain security. Relayers are paid to pass messages and proofs between chains. Attacks like liveness failures on one chain can impact another, requiring incentives that penalize absenteeism and reward reliable, timely delivery across heterogeneous environments.

The foundational protocol layer that relayers operate on, enabling data and value transfer between separate blockchains. This includes standards like IBC (Inter-Blockchain Communication) and generalized message-passing protocols. Relayers are the active network participants that physically transmit and verify these messages for a fee.

A decentralized auction mechanism where users bid for relayer services, typically using the destination chain's native gas token or a universal fee token. This creates a competitive environment where:

• Users submit transactions with a priority fee.
• Relayers choose the most profitable transactions to bundle and execute.
• The market dynamically sets the cost of cross-chain operations.

A common security model where relayers or validators must stake a bond (often the native token) to participate. This bond can be slashed (forfeited) for malicious behavior, such as relaying invalid messages. This stake acts as the primary disincentive against attacks, aligning relayer rewards with honest network operation.

A specialized type of relayer in rollup ecosystems (Optimistic & ZK Rollups). Bundlers aggregate many user transactions from Layer 2, produce a proof or assertion, and post it to the mainnet Layer 1. Their incentives come from capturing the difference between the fees paid by users and the cost of posting data to Ethereum.

A centralized or decentralized entity in rollup systems that orders transactions before they are relayed to Layer 1. While often operated by the rollup team initially, decentralized sequencer sets with permissionless participation and MEV-resistant auction models are a key area of development, closely tied to relayer incentive design.

The profit that can be extracted from reordering, including, or censoring transactions within a block. In cross-chain systems, relayers can engage in cross-chain MEV, arbitraging price differences between chains. Incentive models must balance relayer profit from MEV with the need for fair and timely transaction processing for all users.