Why builders keep outbidding each other by a penny

A post on Ethereum Research sets out to formalise something many searchers and builders already take for granted: an open auction with a random deadline and few bidders tends to leave the bidders with more profit than a sealed auction would. On Ethereum the deadline is uncertain because proposers time their blocks differently and sit in different places, so the relay auction for each block closes at a moment no builder can know exactly.

The mechanism is what the author calls pennying. When two equally fast bidders value a block equally, each can outbid the other by a single tick, and whoever holds the top bid when the auction closes wins. That turns the contest into something like a lottery instead of a race to bid away the whole value. In a stylised model the post shows this is an equilibrium of a single auction, with no explicit collusion or repeated play needed, and that outbidding by one tick is a best response even when larger jumps are possible. It is not the only equilibrium, but the author argues it is attractive and easy for bidders to find.

The consequences run in two directions. Builders, and through them searchers and order-flow providers, keep more of each block's value, which for a given block means lower payments to the proposer. And much of the latency arms race may be an artefact of the equilibrium: bidders update constantly to improve their odds in the lottery, not because they have learned anything new about the block. The author notes the model is simplified, since real deadlines in proof of stake are not memoryless and builders are learning to predict them.

The reason it matters now is Glamsterdam. With ePBS, the post argues, open bidding becomes fragile: a builder can watch an open bid feed and then bid privately through the sealed in-protocol channel. Builders and relays therefore have an incentive to keep the open auction alive by restricting feed access and participation, while proposers have an incentive to keep bids sealed. Neither option, the author stresses, guarantees proposers more revenue.