Imperfect Commitment in Maximal Extractable Value Auctions

TL;DR

This paper analyzes the commitment problem in Ethereum MEV auctions, modeling builder defection behavior and its impact on auction outcomes, with empirical estimates from real data.

Contribution

It introduces a model of builder defection in MEV auctions, quantifies its effects, and provides empirical estimates using the libmev dataset.

Findings

Sandwich opportunities are highly competitive.

Naked arbitrage and liquidations are more susceptible to builder defection.

Effective MEV auctions require both format and constraints on builder behavior.

Abstract

Ethereum block builders run sealed auctions among searchers, but nothing in the protocol forces a builder to honor the auction outcome after observing submitted bundles. This paper studies the commitment problem. We model a builder who defects with probability $\varepsilon$ and, upon defection, replicates a type-specific fraction $\gamma(\tau)$ of the winning MEV opportunity. Searchers anticipate this behavior and choose between a risky first-price bid and a safe deterrence bid that makes frontrunning unprofitable. The resulting equilibrium is piecewise, with the cost of imperfect commitment depending jointly on replicability and competition. Using the \texttt{libmev} dataset, we estimate $\gamma(\tau)$ from right-tail bribe plateaus and decompose observed auction revenue against the surplus a defecting builder could capture. The results show sharp heterogeneity across MEV types: sandwich opportunities are already highly competitive, while naked arbitrage and liquidations leave substantially more surplus exposed to builder defection. Credible MEV auctions, therefore, require not only an auction format, but also constraints on the builder's ability to use observed bid and payload information ex post.