How Does the “Sealed Bid Auction” Mechanism in Flashbots Work?
The sealed bid auction mechanism in Flashbots allows searchers to submit their MEV bundles and their payment (bid) privately to the block builder. The bid is "sealed" because the details are not publicly visible, preventing other searchers from front-running the bundle itself.
The block builder selects the bundle that offers the highest total payment (gas fee plus tip) to the validator. Only the winning bundle is included in the block, and the payment is made, ensuring the most profitable transaction order is executed privately and fairly among the searchers.
Glossar
Flashbots
Architecture ⎊ Flashbots operates as a research and development organization focused on mitigating the negative externalities inherent in public blockchain systems, particularly those related to Miner Extractable Value (MEV).
Auction Mechanism
Mechanism ⎊ Auction mechanisms within cryptocurrency, options trading, and financial derivatives represent formalized processes for price discovery and allocation of assets, differing significantly from traditional order book systems.
Sealed Bid Auction Mechanism
Mechanism ⎊ The sealed bid auction mechanism, prevalent in cryptocurrency derivatives, options trading, and broader financial derivatives markets, represents a bidding process where participants submit bids privately and simultaneously.
Sealed Bid Auction
Auction ⎊ A sealed bid auction, within the context of cryptocurrency derivatives, options trading, and financial derivatives, represents a pricing mechanism where participants submit bids privately and simultaneously, without knowledge of competing offers.