Auction Theory

MEV auctions operate under execution uncertainty. When execution is not guaranteed, auction outcomes are determined by expected value rather than nominal price.

Participants optimize:

EV = bid × P(success)

Execution risk therefore becomes part of the auction itself.

Auction behavior is primarily controlled by distance from execution. As this distance increases, uncertainty grows and auctions shift from deterministic ordering to probabilistic selection.

Latency further amplifies this effect by creating information asymmetry. Participants with faster or more precise access to state gain structural advantages independent of bid size.

As a result, deterministic price-based allocation is only achievable when execution uncertainty is sufficiently low. Beyond that point, auctions degrade into EV-driven selection games.

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Key properties

• Execution uncertainty converts auctions into EV optimization problems

• Distance from execution dominates auction behavior

• Latency creates information asymmetry unrelated to price

• Determinism degrades as uncertainty increases

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Implication

Reducing MEV externalities requires reducing execution uncertainty, not increasing auction complexity.