Priority Gas Auction (PGA)

A Priority Gas Auction (PGA) is a real-time, on-chain auction where participants compete by submitting transactions with progressively higher maxPriorityFeePerGas or gasPrice bids to incentivize a block proposer (validator) to include their transaction first. This occurs when the economic value of being the first to execute a specific on-chain action—such as capturing a profitable arbitrage opportunity or seizing a collateralized debt position in a liquidation—exceeds the cost of the gas bid. The auction concludes when one participant's bid is high enough to deter further competition, and the winning transaction is mined.

PGAs are a direct consequence of Ethereum's permissionless, fee-market design. They represent a pure economic contest outside the protocol's core rules, where the validator's profit motive aligns with accepting the highest fee. Key scenarios that trigger PGAs include DeFi arbitrage (exploiting price differences between decentralized exchanges), liquidations (being the first to trigger and claim a liquidation bonus), and NFT minting for highly sought-after collections. In these cases, being even one block earlier can mean securing millions in profit, justifying extreme gas bids.

The mechanics of a PGA often involve automated searcher bots that monitor the mempool and blockchain state. When a profitable opportunity is detected, these bots engage in rapid, iterative bidding, sometimes driving gas prices to extraordinary levels for a single block—a phenomenon visible on block explorers as a gas price spike. This competition efficiently allocates block space to the transaction with the highest time-sensitive value but can also lead to network congestion and increased base fees for all users during peak activity.

A Priority Gas Auction (PGA), also known as a gas war, is a real-time, decentralized auction mechanism that occurs on blockchains like Ethereum when multiple users compete to have their transaction included in the next block. The core mechanism is simple: participants continuously submit replacement transactions for the same action (e.g., buying a newly listed NFT or executing an arbitrage trade) with incrementally higher gas prices or priority fees. The blockchain's mempool and validators (or miners) then order transactions by the offered fee, with the highest bidder winning the right to have their transaction processed first. This creates a transparent but costly competition where economic incentives directly determine transaction ordering.

The process typically unfolds in three phases: initiation, escalation, and resolution. It is often triggered by a high-value, time-sensitive opportunity, such as a profitable DeFi arbitrage chance or the minting of a coveted NFT. Bots and sophisticated users monitor the mempool for these opportunities and automatically engage in the auction. They use techniques like transaction replacement (using the same nonce with a higher gas price) to outbid each other. The auction concludes when the block is mined, including the highest-bidding transaction, and all other competing transactions are discarded or remain in the mempool with lower fees.

PGAs have significant implications for network dynamics and user experience. While they efficiently allocate block space to those who value it most, they can lead to extreme gas price volatility and network congestion, dramatically increasing costs for all users. This mechanism is central to Maximal Extractable Value (MEV), as searchers use PGAs to compete for the right to capture value from transaction ordering. The winner's profit is the value of the captured opportunity minus the exorbitant gas fee paid, which is transferred to the block validator as a reward for including their transaction.

A Priority Gas Auction (PGA) is a competitive bidding mechanism on permissionless blockchains where users submit transactions with escalating gas fees to incentivize miners or validators to include their transaction in the next block, often to capitalize on time-sensitive opportunities like arbitrage or liquidations. The term itself is descriptive: Priority refers to the goal of securing the earliest possible block position, Gas is the network's unit of computational pricing, and Auction describes the open, escalating bid process. This mechanism is a pure market outcome of Ethereum's first-price auction model for transaction fees.

The PGA gained notoriety during the 2020-2021 rise of DeFi and MEV (Maximal Extractable Value). Bots and sophisticated traders began competing in real-time to exploit profitable opportunities, such as arbitraging price differences between decentralized exchanges or being the first to liquidate an undercollateralized loan. This competition manifested as rapidly escalating gas prices for specific transactions, creating visible gas price spikes on block explorers. The PGA became the primary on-chain execution layer for what was then called miner extractable value, highlighting how economic incentives could distort transaction ordering.

Historically, PGAs were often wasteful, burning significant value through gas fees in what were termed 'gas wars.' A canonical example is the bZx flash loan arbitrage in February 2020, where competing bots drove gas prices to extreme levels, with the winning transaction paying over $3,500 in fees for a profit of roughly $1,200. This inefficiency directly spurred protocol-level innovations, most notably the development of MEV-Boost for Ethereum's Proof-of-Stake consensus, which moves the auction for block space off-chain to a competitive builder market, and the rise of private transaction pools (like Flashbots' mev-geth) designed to mitigate the negative externalities of public PGAs.

The evolution from on-chain PGA to off-chain auction markets represents a significant infrastructural shift. While the core economic driver—competition for priority—remains, the implementation has moved to specialized block builders and relays. This mitigates network congestion and reduces the economic rent captured by validators, theoretically returning more value to users. The term PGA now often refers to the original, on-chain version of this competition, which persists in modified forms but is largely supplanted by more sophisticated systems in the modern MEV supply chain.