Centralization in Attester-Proposer Separation

TL;DR

This paper demonstrates that execution tickets and auctions can lead to increased centralization in block proposal markets, favoring the strongest bidders and creating a significant centralizing force even without multi-block MEV strategies.

Contribution

It provides a new model analyzing the interaction between ahead-of-time and just-in-time auctions, revealing how they inherently favor dominant bidders and promote centralization.

Findings

Execution auctions advantage the strongest bidders in JIT auctions.

Strong bidders tend to win execution auctions consistently.

Resale market imperfections reinforce centralization effects.

Abstract

We show that Execution Tickets and Execution Auctions dramatically increase centralization in the market for block proposals, even without multi-block MEV concerns. Previous analyses have insufficiently or incorrectly modeled the interaction between ahead-of-time auctions and just-in-time (JIT) auctions. We study a model where bidders compete in an execution auction ahead of time, and then the winner holds a JIT auction to resell the proposal rights when the slot arrives. During the execution auction, bidders only know the distribution of their valuations. Bidders then draw values from their distributions and compete in the JIT auction. We show that a bidder who wins the execution auction is substantially advantaged in the JIT auction since they can set a reserve price higher than their own realized value for the slot to increase their revenue. As a result, there is a strong centralizing force in the execution auction, which allows the ex-ante strongest bidder to win the execution auction every time, and similarly gives them the strongest incentive to buy up all the tickets. Similar results trivially apply if the resale market is imperfect, since that only reinforces the advantages of the ex-ante strong buyer. To reiterate, these results do not require the bidders to employ multi-block MEV strategies, although if they did, it would likely amplify the centralizing effects.