Recently, there has been an increasing focus on value accrual within blockchain networks. In this memo, we will explore Arbitrum’s newly proposed transaction ordering policy, Timeboost. We will also compare it with other mechanisms like Optimism’s Priority Gas Auction (PGA), FastLane, and OEV Network proposed by API3. We will examine how these transaction ordering policies influence value capture at both the application and base layers.

As highlighted by Flashbots’ research on L2 MEV, over $3.9 Bn in atomic arbitrage volume and $400 Mn in sandwich attacks volume have occurred across major Layer 2 networks such as Arbitrum, Optimism, zkSync, Scroll, and OP Stack-based rollups. Understanding how this value is generated and who captures it is crucial in further designing and optimizing networks.

Transaction ordering policies are a critical aspect of network design, as they directly affect value capture, incentives, and strategies employed by third parties such as searchers. For instance, low-fee networks are vulnerable to spam and DDoS attacks, and the way transactions are ordered impacts how quickly they are processed.

Currently, Arbitrum chains use a First Come, First Serve (FCFS) transaction ordering system at the sequencer level. However, a new proposal under consideration by ArbitrumDAO suggests that Arbitrum One and Nova should adopt Timeboost. In contrast, Optimism uses a modified Priority Gas Auction model based on EIP-1559, while FastLane is employed within Polygon’s ecosystem. API3’s OEV Network is specifically designed for Oracle-reliant transactions like liquidations.

In the sections that follow, we will delve into these transaction ordering mechanisms and assess their potential impact on value capture.

Timeboost

Timeboost is a newly proposed transaction ordering policy for Arbitrum chains. It aims to capture all available MEV for the chain owner while protecting users from harmful types of MEV behavior without sacrificing UX (by preserving fast block times and not adding further delays).

First Come, First Serve Transaction Ordering Policy

Arbitrum chains currently order transactions on a First Come First Serve (FCFS) basis. Transactions are sequenced into blocks based on their order of arrival at the sequencer. In this case, MEV opportunities, like arbitrage, are captured by those whose transactions reach the sequencer first. So, profiting from MEV opportunities usually boils down to winning a latency race. To reduce latency, competitive searchers spend heavily on building low-latency infrastructure and trying to co-locate their systems closer to Arbitrum One’s and Arbitrum Nova’s sequencer.

With FCFS, transactions are included as and when they arrive, ensuring fast block times, up to 100ms. Additionally, without a public mempool-like structure, negative symptoms of MEV, like frontrunning and sandwich attacks, are eliminated. This is in contrast to what is seen on Ethereum Mainnet, where negative symptoms of MEV from Sandwich attacks is multiple times higher than M