Constitutional AIP: Proposal to adopt Timeboost, a new transaction ordering policy

Proposals
1

UPDATE as of MONDAY, 10/7/2024

Timeboost Implementation Adjustments

Timeboost’s design is the culmination of over a year of research and development by the team at Offchain Labs. While the on-chain implementation will be independently audited by Trail of Bits before the Tally vote, the long term performance of Timeboost can only truly be evaluated with real-world data - data that can help hone and fine-tune Timeboost’s design for the benefit of the ArbitrumDAO.

To that end, although the auctioneer will function autonomously, this AIP proposes granting the current sequencer operator the below rights to make the following adjustments from time to time for a period of two (2) years. The rights described below are expected to only be exercised in circumstances where doing so would enhance Timeboost’s long-term stability, preserve or improve the user experience for those using Timeboost-enabled Arbitrum chains, increase the security posture, resiliency, or stability of the chain, and/or otherwise help increase revenue for the ArbitrumDAO:

  • The right to adjust the NonExpressDelayMsec parameter, which is the default delay that non-express lane transactions would be subject to. The default is 200ms, but adjustments could be to any value between 100ms & 500ms, inclusive.
  • The right to change the maxBidsPerSenderInRound parameter, a limit on the number of bids per participant per auction round, to mitigate against active or perceived Denial-of-Service (DoS) attacks on the auctioneer. The starting default will be 5.
  • The right to change the reservePrice to respond quickly to opportunities to increase the DAO revenue from Timeboost bid proceeds and/or to mitigate the risks of bidders colluding. To start, the reservePrice will simply be the minReservePrice.
  • The ability to rotate the auctioneer’s key for submitting bids and the reserve price setter key for changing reservePrice.
  • The right to pause the acceptance and verification of bids. This is to allow the current sequencer operator to provide reliable, consistent UX and maximize infrastructure stability.
  • The right to disable Timeboost entirely in the event of a security risk or otherwise malicious attempt to harm Arbitrum One and Arbitrum Nova node operators, existing deployed applications, and/or end users. The Arbitrum Foundation and Offchain Labs commits to sharing publicly post-mortems and analyses should this scenario arise.

Modifications to other Timeboost parameters, including to values outside the specified ranges and to those not already listed above, but which are otherwise listed in the design specification, will require a constitutional governance vote, in accordance with the ArbitrumDAO Constitution. In cases where the ArbitrumDAO wishes to pause or disable Timeboost, the ArbitrumDAO may use the outcome of a Snapshot vote to do so (since Timeboost has an off-chain component). This special provision allows the ArbitrumDAO to react to market conditions quicker than what a Tally, on-chain vote would allow (~14 days as opposed to ~30 days).

Additionally, it is important to emphasize that for Arbitrum One and Arbitrum Nova, the DAO-elected Arbitrum Security Council can, at any time, perform either Emergency Actions or Non-Emergency Actions to execute software upgrades, perform routine maintenance, and other parameter adjustments to Timeboost, in each case in accordance with its existing powers. These actions can include, but are not limited solely to, exercising the rights proposed above for the current sequencer operator. More information about the Arbitrum Security Council and their scope of powers can be found in the ArbitrumDAO Constitution.

Submitted by: The Arbitrum Foundation
Category: Constitutional, Software Upgrade

Abstract

This AIP proposes the adoption of Timeboost, a new transaction ordering policy for Arbitrum One and Nova. Timeboost enables auctions for the rights to an express lane, giving the winner a time advantage for transaction inclusion and allowing them to potentially capture arbitrage and backrunning opportunities. Proceeds from the auction are at the discretion of the Arbitrum DAO, with two main options outlined in this proposal: collecting bids in ETH or collecting bids in ARB.

Motivation

Arbitrum Chains currently order transactions on a First-Come First-Served basis (FCFS). The motivation to implement FCFS was threefold:

  1. Easy to understand and implement,
  2. Replicate Web2 user experience for instant transaction confirmation,
  3. Protect users against front-running,

Unfortunately, relying solely on first-come first-served transaction ordering is not an ideal long-term solution.

When opportunities to profitably arbitrage across exchanges arise on Arbitrum, “MEV Searchers” race to get their transaction included before anyone else so that they can capture this profit. This latency race involves a lot of spam, placing stress on chain infrastructure and causing searchers to wastefully invest in faster hardware. Furthermore, none of the MEV generated is captured by the chain and instead all profits are collected by searchers.

Timeboost is a new transaction ordering policy that retains many of the great benefits currently in place for Arbitrum chains, including frontrunning protection and fast block times, while allowing the chain to reduce negative externalities from the racing behavior induced by MEV searchers. Additionally, it can socialize the benefits of the transaction sequencing market back to the ArbitrumDAO.

Rationale

Sustainable: Timeboost offers the ArbitrumDAO an opportunity to capture additional revenue that does not come at the expense of users, since the value being captured already exists.

Technically-Inclusive: Rather than capturing arbitrage opportunities by having the fastest hardware, participants can win these opportunities by bidding in an auction.

Neutral and Open: The auction for the express lane is permissionless and participation is open to everyone, where the highest bid wins.

Empowerment: The Arbitrum DAO can configure all aspects of Timeboost, including enabling or disabling it, the auction’s design, and how to handle proceeds.

Key Terms

Express Lane: A separate path for submitting transactions to the sequencer that has priority access compared to normally submitted transactions.

MEV: Maximal extractible value. In the context of Timeboost, MEV refers to the maximum amount of profit someone could make by including their transactions slightly faster than anyone else.

Specifications

The full specification for the Timeboost auction can be found here: GitHub - OffchainLabs/timeboost-design.

The implementation consists of an auction contract and autonomous auctioneer:

  • Auction contract - Prospective bidders must deposit funds into the auction contract before bidding in the auction. The contract is also responsible for verifying bidders’ signatures, checking auction contract account balances, deducting the second-highest bid amount from the account of the highest bidder, and handling the proceeds.
  • Autonomous auctioneer - An offchain program that receives bids from participants and resolves the top two bids to the auction contract. This AIP proposes that the current sequencer operator provision and set up the autonomous auctioneer, if Timeboost is adopted.

Timeboost changes the guarantees around transaction submission and introduces two different paths:

  • Normal path - Transactions in the normal path will experience a short delay (defaulted to 200ms), but will otherwise remain unchanged.
  • Express lane - Transactions in the express lane do not experience any delay.

Nearly all users will continue to submit transactions using the normal path. Timeboost introduces an express lane that can be purchased by sophisticated actors (like searchers) via an auction every minute, with each auction closing 15 seconds before the next round begins.

All bids in the auction are kept private until after the bid submission deadline and the auction winner will pay the same price as the second-highest bid of that round. A bid will only be accepted if it is at or above a minimum bid (the reservePrice). The autonomous auctioneer has the right to change the reservePrice, but it cannot be lower than the minReservePrice, which can only be changed by the ArbitrumDAO. Note, the reservePrice does not represent the expected value of a bid for the express lane, it is just a minimum bid that will be accepted.

We propose setting the minReservePrice to either 0.001 ETH or 3 ARB depending on which currency the DAO votes to collect bids in.

The ArbitrumDAO can configure the currency in which bids are collected and how the remaining 97% of auction proceeds are handled. This AIP proposes two main options that the community can vote on if it decides to adopt Timeboost. Governance can change these options at any time.

  • Collect ETH - Collect bids in ETH and send the proceeds to the DAO treasury.
  • Burn ARB - Collect bids in ARB and burn the proceeds.

Depending on which option the Arbitrum DAO chooses, the auction contract can either transfer the proceeds to a designated account or burn them.

The following data sources will eventually be saved and made available after Timeboost goes live on Arbitrum One and Arbitrum Nova, if this proposal passes:

  • Historical bid data for auction participants, outside of the two highest bids (that are otherwise posted on-chain)
  • A way to label/identify which transactions were sequenced in the express lane (i.e. Timeboosted transactions).

Finally, the proposed version of Timeboost is compatible with a centralized sequencer. However, the Timeboost policy will also be compatible with proposals for a decentralized sequencer. 3% of auction proceeds would be set aside for the Arbitrum Developer Guild, which helps fund core Arbitrum development.

Timeboost Implementation Adjustments

Timeboost’s design is the culmination of over a year of research and development by the team at Offchain Labs. While the on-chain implementation will be independently audited by Trail of Bits before the Tally vote, the long term performance of Timeboost can only truly be evaluated with real-world data - data that can help hone and fine-tune Timeboost’s design for the benefit of the ArbitrumDAO.

To that end, although the auctioneer will function autonomously, this AIP proposes granting the current sequencer operator the below rights to make the following adjustments from time to time for a period of two (2) years. The rights described below are expected to only be exercised in circumstances where doing so would enhance Timeboost’s long-term stability, preserve or improve the user experience for those using Timeboost-enabled Arbitrum chains, increase the security posture, resiliency, or stability of the chain, and/or otherwise help increase revenue for the ArbitrumDAO:

  • The right to adjust the NonExpressDelayMsec parameter, which is the default delay that non-express lane transactions would be subject to. The default is 200ms, but adjustments could be to any value between 100ms & 500ms, inclusive.
  • The right to change the maxBidsPerSenderInRound parameter, a limit on the number of bids per participant per auction round, to mitigate against active or perceived Denial-of-Service (DoS) attacks on the auctioneer. The starting default will be 5.
  • The right to change the reservePrice to respond quickly to opportunities to increase the DAO revenue from Timeboost bid proceeds and/or to mitigate the risks of bidders colluding. To start, the reservePrice will simply be the minReservePrice.
  • The ability to rotate the auctioneer’s key for submitting bids and the reserve price setter key for changing reservePrice.
  • The right to pause the acceptance and verification of bids. This is to allow the current sequencer operator to provide reliable, consistent UX and maximize infrastructure stability.
  • The right to disable Timeboost entirely in the event of a security risk or otherwise malicious attempt to harm Arbitrum One and Arbitrum Nova node operators, existing deployed applications, and/or end users. The Arbitrum Foundation and Offchain Labs commits to sharing publicly post-mortems and analyses should this scenario arise.

Modifications to other Timeboost parameters, including to values outside the specified ranges and to those not already listed above, but which are otherwise listed in the design specification, will require a constitutional governance vote, in accordance with the ArbitrumDAO Constitution. In cases where the ArbitrumDAO wishes to pause or disable Timeboost, the ArbitrumDAO may use the outcome of a Snapshot vote to do so (since Timeboost has an off-chain component). This special provision allows the ArbitrumDAO to react to market conditions quicker than what a Tally, on-chain vote would allow (~14 days as opposed to ~30 days).

Additionally, it is important to emphasize that for Arbitrum One and Arbitrum Nova, the DAO-elected Arbitrum Security Council can, at any time, perform either Emergency Actions or Non-Emergency Actions to execute software upgrades, perform routine maintenance, and other parameter adjustments to Timeboost, in each case in accordance with its existing powers. These actions can include, but are not limited solely to, exercising the rights proposed above for the current sequencer operator. More information about the Arbitrum Security Council and their scope of powers can be found in the ArbitrumDAO Constitution.

Steps to Implement

If the ArbitrumDAO approves the AIP, the path would consist of:

  1. Discussion of the proposal on the forum (this post) and governance call(s).

  2. A vote on Snapshot to decide between*

  • Option 1 (collect ETH),
  • Option 2 (burn ARB), or
  • Option 3 (decline to adopt Timeboost)

  1. Sufficient time for testing on a public testnet, such as Arbitrum Sepolia

  2. A third-party, independent audit of the Timeboost auction contract by Trail of Bits and subsequent fixing of any issues found, alongside publication of the audit report.

  3. An on-chain vote to deploy the upgrade on Arbitrum One and Arbitrum Nova.

FAQs

Here is a compilation of FAQs based on questions received from the community.

If there are questions that are not covered in this FAQ document, please add them as a comment to this forum post, and they will be added to the FAQ document accordingly.

13 Likes
2

FAQs

  1. What’s an ELI5 on Timeboost?

Timeboost is a new transaction ordering policy for Arbitrum chains where participants can bid for the right to get their transactions included slightly faster than anyone else. Importantly, user transactions will still remain private until after they are executed, meaning that no one can frontrun or sandwich users. Timeboost bids are collected by the Arbitrum DAO in either ETH or ARB, depending on DAO approval.

  1. As a typical user, will I notice any difference in my experience?

The only difference users should experience is a small delay when submitting their transactions. The default configuration for this delay is 200ms and can be changed by the Arbitrum DAO. This delay is to give the express lane controller an advantage so they are able to include transactions slightly quicker than others. Importantly, user transactions will still remain private until after they are executed, meaning that the express lane controller cannot frontrun or sandwich users.

  1. Where does the Timeboost income stream come from?

Timeboost auctions the rights to an express lane, giving the winner an advantage for transaction inclusion and allowing them to capture arbitrage and backrunning opportunities. Proceeds from the auction are at the discretion of the Arbitrum DAO, with two main options outlined in this proposal: collecting bids in ETH or collecting bids in ARB.

  1. What is the difference between the two options?

This AIP proposes two main options that the community can vote on if it decides to adopt Timeboost. Governance can change these options at any time.

  • Option 1: Collect bids in ETH and send the proceeds to the DAO treasury.
  • Option 2: Collect bids in ARB and burn the proceeds.

Depending on which option the Arbitrum DAO chooses, the auction contract can either transfer the proceeds to a designated account or burn them.

  1. How can I participate in Timeboost directly?

Interested parties can participate in the Timeboost auctions by depositing funds in the auction contract and sending bids to the autonomous auctioneer. We will have docs with more information.

The Timeboost auction is open to everyone; however, only parties interested in capturing arbitrage or backrunning opportunities will benefit from winning it. Timeboost works behind the scenes with minimal impact on normal users, generating revenue for the Arbitrum DAO.

  1. How much estimated revenue will this drive to the DAO?

Estimating how much revenue Timeboost will generate is difficult and based on many factors. There are no ways to confidently estimate the amount of arbitrage or backrunning opportunities that will exist on Arbitrum chains in the future. The expectation is that the revenue will be significant on Arbitrum One due to the high amount of DeFi activity.

  1. Does it work with Orbit chains?

Timeboost can be adopted by Orbit chains, and they can also choose different tokens from ETH or ARB to be paid in if they wish. For example, a chain could choose to accept its own token for the auction.

  1. Will there be a testnet for Timeboost?

Timeboost will be enabled on internal devnets and Arbitrum Sepolia prior to Arbitrum One and Nova.

  1. What is the timeline for Timeboost?

Timeboost is at the beginning of the governance process and must undergo forum discussion, a Snapshot vote, and an onchain vote before being adopted on mainnet.

  1. Will it work with future decentralized Arbitrum sequencers?

The proposed version of Timeboost is only compatible with a centralized sequencer, however, a future version that works with a decentralized sequencer is under development. This allows us to deliver Timeboost sooner, rather than waiting until the decentralized sequencer is complete.

10 Likes
3

Hello,

very interesting proposal and idea behind Timeboost.
Basically its a “sniper tool” for MEV searcher, NFT sniper and every other situation where one needs to be fast.

What is going to happen if, lets says, every user is deciding to use the fast lane. Who will be the winner then?

Also I would tend to Option 2, collect in ARB and burn.
One could say we need more ETH in the treasury, but I do think the main problem is not that we need more ETH, rather the DAO should focus more on spending and budgets.

5 Likes
4

Very interesting proposal, it’s a great way to increase revenue while not really disrupting the MEV scene on Arbitrum for average users.

As we are moving closer to ARB staking and some kind of revenue distribution, I believe it makes more sense to collect fees in ETH to also keep some consistency with the rest of fees on the network.

Just curious of a few technical aspects of timeboost:

  1. As the express lane auctions happen every minute, in a situation with no usage what would be the minimum auction price be? Would it be the same cost of using the normal path or would the reserve price be set up in a way so that it is always guaranteed to cost more and therefore generate higher fees for Arbitrum?
  2. Does the starting bid depend on previous time slot bid price helping to capitalise more in periods of high activity or it always starts from the same constant reserve price?
5 Likes
5

Great post! This is @yusufxzy from Delphi Digital. A couple of questions-

  1. Its helpful to have prospective bidders place a deposit in order to bids. I assume this mechanism is in place to avoid spam from searchers. How is this deposit value quantified?

  2. What does block construction look like when the Time Boost is in place? Does the sequencer have to place the express bundles atop other, normal bundles? What if there is a delay in receiving the express bundle? Does it delay the block building process? What are some mechanisms in place to avoid such situations?

  3. What would happen in case the autonomous auctioneer goes offline? Would Arbitrum revert to FCFS as a fall back immediately? What measures do we have to protect against the autonomous auctioneer down-time? Who would manage this auctioneer?

6 Likes
6

We should start to think about how to drive value back to the Arb token with new initiatives like this. I propose two possible solutions:

  1. Allow users to stake ARB tokens in order to receive a share of the fees generated by the auction
  2. Require users to stake a certain amount of ARB in addition to paying the auction fee to get access to this priority transaction lane - could also allow people to delegate ARB to a specific user in return for a share of the profits from the MEV to reduce the up front capex for smaller players
7 Likes
7

There is only one option: consume arb
A good ecosystem is a positive cycle. Arbitrum should use arb as the center of the ecosystem to spread outward. The current competitive landscape of L2 is unclear. The functions of each other are not irreplaceable. Doing something well is not about doing it well, but about making it different. I believe this is a good start.

2 Likes
8

Timeboost is going to take Arbitrum DAO to the next level. Absolutely stoked for this one! I still need to dig into the technicals, but I am obviously supportive of this initiative… as I am sure most community members will be.

In reference to the below:

I believe it is a no brainer to collect the fees in ETH and send the proceeds to the treasury where they can be leveraged to earn additional yield into perpetuity. I understand people want ARB utility ASAP, but I firmly believe that we can build up a treasury worth 10s of billions of dollars of ETH and Stables over time. Once we reach that point, I will be in favor of protocol revenue share with token holders through some type of mechanism.

I believe it is extremely important for the DAO to have a longterm mindset on these types of issues rather than rushing to share profit or burn ARB tokens during our early stage growth phase. Do we really want to be in a situation where we enter a bear market with a treasury w/ 99% of its assets in ARB with no inherent staking yield, and minimal yield opportunities / liquidity when compared to ETH? Or do we want hundreds of millions (and eventually billions) of dollars of ETH and Stables that can earn at minimum the ETH staking yield and US short term treasury yield?

To me, the answer is obvious. I want Arbitrum to be well capitalized over the coming decades, rather than essentially buying our token at a valuation that has a ton of speculative premium priced in and sending it to an EOA that no one controls or benefits from…

12 Likes
9

I propose a third option for profit distribution.
Distribute 100% of the received ARB to ARB stakers (if such staking is accepted)
In any case, I believe that there is no point in burning ARB: there are many ways to properly distribute profits.

5 Likes
10

I believe the adoption of Timeboost is a beneficial move for Arbitrum, as it not only addresses MEV-related challenges but also creates a sustainable revenue stream for the DAO. I agree with @cp0x suggestion to distribute ARB proceeds to stakers, which fosters community engagement and aligns incentives without reducing the ARB supply through burning.

5 Likes
11

Distributing the proceeds to Stakers creates selling pressure. Typically, stakers sell their staking income, such as salary, at the end of the month. However, if there is a constantly burning supply, it activates the holding psychology more and people theoretically hold it as if they were Staking, without receiving Stake income. Burning is more positive for pricing.
I think the staking mechanism should be placed at the center of Bold in the future when price stability is achieved. @cp0x @0xTALVO.ETH_MTY

4 Likes
12

Overall the idea sounds exciting and I’m aligned with most of the positive arguments highlighted in the convo, but I do have a few reservations:

1. Technical implementation
As @yusufxzy and @0x_ultra highlighted above, having more information about some mechanisms and technical details would be helpful, in particular re the auctioneer management and potential associated risks.

2. Data and projections
Is there any existing data on similar implementations on other chains that we could refer to? If not, do we have any projections or models to rely on? Specifically, data on how this change might impact arbitrage behavior – based on the potential increase of transaction costs and block time. How much those increases could impact the current arbitrage opportunities – which in turn might affect traffic? This is a pretty important consideration imho, and having a past study or projections would help assess the potential impact more clearly.

3. Profits redistribution
The DAO’s recent focus has mostly be on strengthening its treasury and enhancing ARB’s utility, which isn’t a bad thing in itself, but I feel like we’re forgetting there are other options. For instance, could we consider redistributing a portion of the profits (in ARB?) generated to the protocols used by these transactions? This feels like a fair and easy way to incentivize protocols by actually rewarding them for real contributions and activity on the chain.

2 Likes
13

gm, super interesting proposal - thank you for sharing. Arbitrum developers confirmed to be superstars who always look at new win-win improvements for the ecosystem.

I would like to understand better who would be the target user of this (maybe asking some dumb questions here):

What type of MEV activity exists today on Arbitrum? What do searchers search for?

Similarly, with this type of timeframe, what kind of transactions would go through the fast lane?

On top of the 2 options proposed, I lean towards accumulating ETH in the Treasury, until we agree on the best way to distribute it and/or we have accumulated enough reserves.

In general, I would exclude token burning because it doesn’t inherently increase the fundamental value of the token: https://www.placeholder.vc/blog/2020/9/17/stop-burning-tokens-buyback-and-make-instead

3 Likes
14

I share most of this but wanna focus on 3.

While i think we should go for eth, because from ballpark numbers arb might not be the best idea, i think the above could be brilliant to spin up the following for builders: when you deploy on arb, if your protocol generates a certain type of traffic, you get a share of the revenue of the whole chain.

And while this could potentially be a compliance and organization nightmare, could also be one of the things that creates a new narrative, not seen at scale, in our industry.

4 Likes
16

If, according to your plan, the treasury still needs to operate for up to a dozen more years to finally achieve linear release and bring rights to holders, what is the current function of the ARB token? Is it for voting or just a tool for the team to raise funds? Everyone is well aware of who holds absolute power, which leads to retail investors’ indifference towards voting rights. If this situation continues, why issue ARB? If you can take money from your own pocket during the next token incentive to offset the token sell pressure from monthly team and VC unlocks, as well as ecosystem incentives, then I would absolutely support your view. The formation of a “big government” mentality due to the ever-growing treasury and declining governance participation is what should be cautioned against

4 Likes
17

Does grounded governance models in general align with Offchain Labs’ MEV vision for Arbitrum? This requires a nuanced answer:Alignment in Principle, But Not a Direct Overlap:

  • Shared Values: The principles you outlined (contextual adaptation, trade-off analysis, experimentation, long-term vision) DO resonate with Offchain Labs’ commitment to thoughtful and community-driven development.
  • MEV is Specific: However, MEV (Maximal Extractable Value) is a very specific aspect of blockchain design. It’s about how value is captured from the ordering and inclusion of transactions.
  • Governance is Broader: Governance models, while influencing MEV, encompass a much wider range of decisions: treasury management, protocol upgrades, community grants, and more.

How They Intersect:

  1. MEV Revenue as a Governance Lever: Offchain Labs clearly wants to capture MEV to benefit the Arbitrum DAO. This revenue stream BECOMES a factor in governance:
  • How should it be allocated?
  • What should it be spent on?
  • Do token holders get a say?
  1. Governance Mechanisms Impact MEV Extraction:
  • Different voting systems might favor certain stakeholders who have more (or less) ability to extract MEV.
  • Transparency around governance can reduce the information asymmetry that MEV searchers often exploit.

In Conclusion:

  • Offchain Labs’ MEV vision creates a subset of challenges that mathematically sound governance can help address.
  • Simply having advanced governance models does NOT guarantee alignment with their MEV goals. The specific design and implementation are what matter.
  • It’s MORE about how those models are used to:
    • Fairly distribute MEV benefits
    • Prevent harmful MEV extraction that harms users
    • Maintain a transparent and predictable playing field for all participants.

Your original analysis is valuable because it provides a toolkit for thinking about these complexities. Now, the discussion needs to shift towards how those tools are applied specifically within the context of Arbitrum’s MEV goals.

1 Like
18

We believe this a multi-faceted proposal that represents a significant shift in MEV management and presents a valuable opportunity for Arbitrum.

1. Economic & Technical

The current First-Come First-Serve ordering model is flawed, due to its excessive enablement of MEV Searchers and its failure to capture value. The potential implementation of this proposal would enable the introduction of Timeboost, which allows MEV extraction but in a manner that protects network users and is more efficient at capturing value.

The implementation of this proposal would thus allow Arbitrum to meaningfully innovate on transaction ordering while expanding its set of value-accruing mechanisms.

2. Values, Ethos and Users First
Furthermore, Arbitrum’s long-term goal and premise is to arguably circumvent and build upon the ‘shortcomings and pitfalls’ of Ethereum, where maximally extractive activities like sandwich trades and frontrunning profoundly harm and impede user experience.

The implementation of this proposal is aligned with the core values of Arbitrum while solving an important pitfall in the user experience of many crypto users.

3. Value-accrual and Distribution
Although exact revenue estimates are challenging, Timeboost is expected to become another revenue-generating source for Arbitrum without compromising user experience. That is undoubtedly another great step forward which enhances Arbitrum’s long-term sustainability and viability.

How the newly captured and accrued value is distributed, is a nuanced topic that may require a separate vote, due to the sheer amount of inputs and debates that typically surround value-distributing mechanism proposals (buyback & burn, rev-share to all ARB holders vs. to ARB stakers, distributing ARB vs. ETH, etc.).

Individuals may agree with and be in favour of the implementation and adoption of Timeboost, but may not necessarily agree with and be in favour of any of the proposed value-distributing mechanisms.

In the context of the current options proposed, we find Option 1 (collect ETH) to be the superior option.

At this point in time, the token ‘burning’ mechanism has been sufficiently time and battle-tested. There have been various implementations of this mechanism across the industry. Yet, according to the existing data (both internal and external) today, it is clear that from a purely economic perspective, none of its implementations tend to fundamentally and efficiently drive value to the underlying token.

From a legal/regulatory perspective, the ‘buyback and burn’ mechanisms have been deemed a more ‘compliant’ and viable solution, which is a common reason why many protocols and initiatives still decide to adopt this approach, despite its subpar economic performance.

However, the legal and regulatory landscapes are continuously evolving and changing, while the fundamentals and economics do not. That is why we find Option 1 (collect ETH) to be a superior option.

Additionally, besides the pure assessment of the proposal itself, Express Lane appears to be greatly similar to Fast Lane on Polygon and hence it could be efficient and worthwhile for the two teams to connect and collaborate.

2 Likes
20

This is an exciting proposal!

Regarding choosing the right option (burn ARB or receive ETH), my belief is that this need to be evaluated having in mind a broader discussion about DAO’s spending budget, runway, and treasury management strategy. Having to choose now, I would say that option 1 is better, as is an extra revenue stream to the DAO, that can later decide how to use that to foster growth and perpetuity.

1 Like
21

This is a great proposal that I’m very excited to support. Let’s assume for now that the mechanism design finds its sweet spot before implementation. In that case, here are my suggestions.

Do a split of the profits between ARB burn and ETH collection

  1. This signals that we are aggressively trying to give ARB utility
  2. This enables some diversification to ETH
  3. This creates a ritual that the community can rally around and discuss the current needs of the DAO on a regular basis improving communications, trust between participants, and participation levels overall

I think both signals are important for Arbitrum at this time. Showing that we are willing to give ARB utility is why I think this amount should be non-zero. However, diversification is critical and this is a great way to do it.

My suggestion is monthly or quarterly votes to update the ratio such that the community can regularly take part in adjusting to the current environment and needs of the ecosystem.

6 Likes
22

Hey everyone, thank you for your questions. Please find the answers to each question in this reply.

There is only one winner of the Express Lane auction, with the winner determined by the highest bid during a round.

There are two reserve prices that are configurable by the DAO. The first is a “minimum reserve price,” which is set by governance. The second is a “current reserve price,” which an address designated by governance can call the auction contract to change the current reserve price to any value greater than or equal to the minimum reserve price. To start, the proposed minimum reserve price is 0.001 ETH or 3 ARB per round (depending on what currency the DAO votes to collect bids in), and there is no address designated to change the current reserve price.

The minimum bid depends on the current reserve price. The minimum bid someone can place has to be at or above the current reserve price.

Prospective bidders can deposit any amount into the auction contract and bid up to the value of their deposit. Bidders benefit by depositing more than their intended bid to conceal their true bid from others. The deposits ensure that funds can always be collected from the winning bidder.

Express lane transactions or bundles aren’t associated one-to-one with blocks. A block might have no express lane transactions, or it might include transactions from multiple express lane bundles.

The sequencer never stops and never waits for anything to be submitted.

Normally, when it is time to make the next block, the sequencer takes the express-lane transactions it has received, plus any normal transactions it received at least 200 milliseconds ago, and puts all of them into a block.

If the autonomous auctioneer goes offline or if no bids above the reserve price are received, the sequencer will revert to having no delay imposed on normal transactions.

Similar implementations don’t exist on other L2s, however, some chains implement a priority gas auction which can capture a portion of MEV. Estimating how much revenue Timeboost will generate is difficult and based on many factors. There is no reliable way to confidently estimate the amount of arbitrage or backrunning opportunities that will exist on Arbitrum chains in the future. The expectation is the express lane won’t cause an increase in traffic, since the express lane will primarily be used for the same arbitrage and backrunning opportunities that would exist with or without it. Block times will remain 250ms.

The DAO is free to distribute Timeboost revenue in any way. However, it may be difficult to attribute the revenue back to the applications that created it.

Common MEV activities include CEX-DEX arbitrage, cross-DEX, cross-chain MEV, and liquidation backrunning.

The expectation is that the express lane will be used mostly for arbitrage and backrunning transactions.

4 Likes