Shared Sequencing and Latency Competition as a Noisy Contest

TL;DR

This paper analyzes shared sequencing in cross-chain transactions, revealing that while it increases arbitrage opportunities, it can also lead to more latency waste and its revenue benefits depend on specific ordering rules and arbitrage potential.

Contribution

It introduces a minimal model for cross-domain arbitrage and compares shared versus separate sequencing, highlighting nuanced effects on latency and revenue.

Findings

Shared sequencing increases arbitrage opportunities.

Latency competition can be more wasteful with shared sequencing.

Revenue benefits of shared sequencing depend on ordering rules and arbitrage value.

Abstract

We study shared sequencing for different chains from an economic angle. We introduce a minimal non-trivial model that captures cross-domain arbitrageurs' behavior and compare the performance of shared sequencing to that of separate sequencing. While shared sequencing dominates separate sequencing trivially in the sense that it makes it more likely that cross-chain arbitrage opportunities are realized, the investment and revenue comparison is more subtle: In the simple latency competition induced by First Come First Serve ordering, shared sequencing creates more wasteful latency competition compared to separate sequencing. For bidding-based sequencing, the most surprising insight is that the revenue of shared sequencing is not always higher than that of separate sequencing and depends on the transaction ordering rule applied and the arbitrage value potentially realized.