Quantifying the Value of Revert Protection

TL;DR

This paper analyzes how revert protection in blockchain platforms impacts economic efficiency, auction revenue, and market outcomes, providing a formal model and quantitative insights into its benefits across various blockchain settings.

Contribution

It introduces a formal model quantifying the economic benefits of revert protection in blockchain auctions and market efficiency, applicable to multiple blockchain architectures.

Findings

Revert protection increases auction revenue.

Revert protection improves market efficiency.

Revert protection enhances blockspace utilization.

Abstract

Revert protection is a feature provided by some blockchain platforms that prevents users from incurring fees for failed transactions. We study the economic implications and benefits of revert protection in the context of priority gas auctions and maximal extractable value. We develop a model in which searchers bid for a top-of-block arbitrage opportunity under varying degrees of revert protection. This model applies to a broad range of settings, including bundle auctions on L1s and priority ordering sequencing rules on L2s. We quantify, in closed form, how revert protection improves equilibrium auction revenue, market efficiency, and blockspace efficiency.