TimeBoost: Do Ahead-of-Time Auctions Work?

TL;DR

This paper evaluates the effectiveness of the TimeBoost auction by analyzing how well bids predict future value, revealing weak correlations but some predictive trends over time.

Contribution

It provides an empirical analysis of TimeBoost auction performance, highlighting the predictive limitations of bids and the importance of trend detection.

Findings

Weak correlation between winning bids and markouts across bidders

Higher correlation when comparing paid bids to markouts over long intervals

Previous minute markouts significantly predict current minute bids

Abstract

We study the performance of the TimeBoost auction, by comparing cumulative fixed time markout of fast lane trades over the TimeBoost interval to bids for the fast lane. Such comparison allows us to assess how well bids predict future extracted value from the time advantage. The correlation between winning bids and markouts is weak across bidders, suggesting that bids are a noisy predictor of extracted value. The correlation slightly improves when comparing paid bids (the second highest bid) instead of winning bids to markouts, which we attribute to the fact that the auction is more of a common value type. In all settings, the relative order of the most frequent bidder performance remains the same, together with their absolute profits. Bids and markouts aggregated over long time intervals exhibit much higher correlation, indicating that bidders detect trends much better than identify when the high arbitrage value is exactly available. One possible explanation for this is the fact that the correlation between previous minute markouts and current minute bids is significant, suggesting that the previous minute markouts is used to predict the next minute value when bidding.