Problem Description
It is generally assumed as folk wisdom that CEX market makers have an advantage in slot auctions. We want to micro-found this assumption and explicitly derive the size of the advantage. The right to propose in the next slot functions. among other things. as an (outside) option to balance their position. We want to derive the value of that option and the resulting effect on bidding strategy and outcomes.
Related Notes
This paper derives the value of an execution right in a private value model assuming it can be resold. It doesn’t model where the private value comes from:
Time Boost on Arbitrum is not a slot auction but we should expect related dynamics.
