Gas Auction

A primary trigger is the launch of a highly anticipated NFT collection. Users compete to mint tokens at a fixed price, creating a first-come, first-served race. To ensure their transaction is included in the earliest possible block, bidders aggressively raise their gas price, initiating an auction. This was famously observed during the mint of projects like Bored Ape Yacht Club and Otherdeed.

Liquidation bots and arbitrageurs trigger auctions when profitable opportunities arise. For example:

• A sudden price drop creates undercollateralized loans, prompting bots to bid for the right to execute liquidations.
• A large trade creates a price discrepancy between DEXs, triggering a race for MEV (Maximal Extractable Value) arbitrage. These actors are willing to pay high gas fees because the profit from the executed transaction outweighs the cost.

Critical on-chain governance votes, especially those involving protocol upgrades or treasury allocations, can trigger gas auctions. Delegates or large token holders may engage in bidding to ensure their decisive vote is recorded in a specific block, particularly when a proposal is highly contested or time-sensitive. This ensures their voting power is counted at a precise moment.

The opening of claim windows for major token airdrops creates a surge in transaction demand. Eligible users rush to claim their tokens, fearing the allocation pool might be depleted or that early claims might be more valuable. This mass simultaneous action creates congestion and forces users to outbid each other on gas to complete their claim transaction successfully.

Transactions that depend on fresh oracle price feeds (e.g., from Chainlink) can trigger localized auctions. Key DeFi functions like settling perpetual futures or calculating loan health ratios require the latest price. When an update becomes available, multiple protocols and bots may compete to be the first to act on that new data, bidding up gas to secure their position in the update block.

When bridging large sums of assets between blockchains, users and bots may engage in gas auctions on the destination chain. This occurs when a cross-chain message is ready for finalization, and there is value in being the first to claim the bridged funds or execute a subsequent trade. The race is to become the relayer that submits the final proof, collecting any associated fees or MEV.

In a first-price auction, users submit a gas price bid they are willing to pay, and the highest bids are included in the next block, with each user paying exactly their bid. This was Ethereum's original model, which led to inefficiencies like overpaying and unpredictable fee estimation.

• Example: Bidding 100 Gwei when the market-clearing price was 80 Gwei results in paying 100 Gwei.
• Creates a winner's curse where users often pay more than necessary to ensure inclusion.

EIP-1559 reformed the auction with a base fee that adjusts per block based on network demand, which is burned. Users add a priority fee (tip) to incentivize miners/validators.

• The base fee is a mandatory, algorithmically set price for inclusion.
• The tip is a separate, smaller auction for ordering transactions within the block.
• This creates more predictable fees and reduces fee volatility, but the tip component remains a competitive auction.

Maximal Extractable Value (MEV) opportunities, like arbitrage or liquidations, trigger intense Priority Gas Auctions (PGAs). Bots compete by repeatedly submitting the same transaction with incrementally higher gas bids to win the profitable slot.

• Drives up network congestion and fees for all users.
• Can lead to chain reorganizations (reorgs) if miners abandon blocks for more profitable ones, threatening network stability.
• Mitigated by MEV-Boost and proposer-builder separation (PBS) on Ethereum.

Gas auctions are fundamental to Proof-of-Work (PoW) and Proof-of-Stake (PoS) security. High, competitive fees:

• Incentivize miners/validators to secure the network honestly, as block rewards and fees constitute their revenue.
• Can create centralization pressure if only large, sophisticated players can afford to participate in PGAs.
• During network stress, exorbitant fees can price out regular users, reducing network utility and potentially security if validator revenue becomes too volatile.

Solana's TimeBoost feature introduces a distinct auction layer. Users can pay an additional priority fee to purchase compute units (CU) at a higher priority tier, bypassing the standard scheduler.

• This is a direct auction for faster execution, not just block inclusion.
• Helps prevent network-wide congestion during high demand by allowing critical transactions (e.g., oracle updates, liquidations) to proceed.
• Separates the auction for speed from the base fee for inclusion.

Several mechanisms exist to manage auction side-effects:

• Fee Estimation Tools: Wallets use algorithms to suggest optimal bids, reducing overpayment.
• Private Mempools (Channels): Services like Flashbots Protect allow submitting transactions directly to builders, avoiding public PGAs and frontrunning.
• Account Abstraction: Enables sponsored transactions and gasless transactions, decoupling fee payment from the user's wallet.
• Layer 2 Scaling: Moves transaction execution off-chain, reducing demand on the Layer 1 auction.

A voluntary fee paid by a user on top of the base fee to incentivize a validator or block builder to include their transaction more quickly. In a gas auction, users compete by bidding higher priority fees to win block space.

• Purpose: Secures faster transaction inclusion.
• Mechanism: Paid directly to the block proposer.
• Example: On Ethereum, this is the maxPriorityFeePerGas parameter.

The maximum value that can be extracted from block production in excess of the standard block reward and gas fees. Gas auctions are often driven by MEV searchers competing to have their arbitrage or liquidation transactions included in a specific position within a block.

• Sources: DEX arbitrage, liquidations, NFT minting.
• Auction Link: Searchers bid high gas fees to win profitable opportunities.

A specialized network participant (often a sophisticated actor or a specialized service) that constructs full block contents by selecting and ordering transactions from the mempool. In Proposer-Builder Separation (PBS) architectures, builders compete in a gas auction by submitting the most profitable block (highest total bid) to the block proposer.

• Role: Aggregates transactions and MEV opportunities.
• Output: Creates an execution payload for the proposer.

A design paradigm that separates the roles of block proposer (consensus) and block builder (execution). It formalizes the gas auction market by having builders compete to sell their constructed blocks to the proposer via a sealed-bid auction (e.g., mev-boost on Ethereum).

• Goal: Reduce centralization risks and MEV-related harms.
• Auction Type: Typically a first-price sealed-bid auction.

The minimum gasPrice required for a transaction to be included in a block, which is algorithmically adjusted per block based on network congestion. The base fee is burned. In a gas auction, users compete by paying a priority fee on top of this mandatory base fee.

• EIP-1559: Introduced the base fee mechanism on Ethereum.
• Function: Provides predictable gas costs and fee burning.

The pool of pending, unconfirmed transactions broadcast to the network. It is the source of transactions for gas auctions, where validators, builders, and searchers scan for opportunities. Transactions in the mempool are ordered by their effective gas price, creating a continuous, open auction.

• State: Also known as the transaction pool or txpool.
• Auction Venue: The primary marketplace for transaction inclusion.