Osmosis: The Top-of-Block Auction Mechanism

The upcoming governance proposal about the v25 upgrade will propose the introduction of a new feature called the top-of-block auction mechanism, which taps into the potential of Skip’s Block SDK to refine how transactions are processed and to add new bidding functionalities.

Block SDK Overview

The Block SDK design segments blocks into “lanes”. Each lane handles different kinds of transactions, operating under its own set of rules for block construction. This approach should help make transaction processing more efficient and customizable.

Here’s what you need to know:

• Lane-Specific Transactions: Different types of transactions are processed in their own lanes, each with a cap on block space.
• Iterative Processing: Lanes fill up the block one at a time in a specific order, both during the block proposal and verification stages.

Top-of-Block Auction Overview

The top-of-block auction lives in it’s own lane and is all about optimizing how transactions get ordered within a block. Here’s a quick rundown:

• Auction Participation: Users can now submit transaction bundles through a new type, AuctionTx. Just remember, AuctionTx should only contain the MsgAuctionBid message.
• Bidding Mechanics: You can place your bids either via a dedicated AuctionHouse smart contract (TBD) or directly through the Msg type.
• Auction Parameters:

Auction Parameters

  • MaxBundleSize: Capped at 5 transactions per bundle.
  • ReserveFee: A minimum of $1 (USDC) required to bid.
  • MinBidIncrement: Bids need to be at least $1 (USDC) higher than the previous highest bid.
  • FrontRunningProtection: Initially set to true to help keep things fair.

What This Means for Osmosis

Better Pricing Through Faster Arbitrage: The top-of-block mechanism significantly speeds up the resolution of arbitrage opportunities, particularly interchain, which directly leads to more efficient pricing within the ecosystem.

New Revenue Streams Explained:

• 95% of the Auction Proceeds: This portion goes into an escrow account, with the usage determined by community governance, potentially funding new projects or burning mechanisms.
• 5% to Validators: The validators producing the block receive this portion, incentivizing timely and efficient block production.

Advanced Transaction Filtering Capabilities:

• Validators can now more precisely manage which transactions are prioritized, enhancing the network’s integrity and efficiency. This detailed filtering is seen as a proactive measure rather than tampering, aiming to optimize network throughput.

Future Potential with Zero-Fee Transactions:

• We are exploring avenues like zero-fee lanes for specific transactions such as claiming staking rewards and governance voting, aiming to remove barriers to participation and foster greater community engagement.

Join the discussion on the Osmosis Forum: https://forum.osmosis.zone/t/an-introduction-to-the-top-of-block-auction-mechanism/2736

Follow Osmosis on Twitter to stay up-to-date on the latest developments: https://x.com/osmosiszone