https://docs.flashbots.net/flashbots-auction/overview
Flashbots Auction is a permissionless, transparent, and fair ecosystem for efficient MEV extraction and frontrunning protection which preserves the ideals of Ethereum. Flashbots Auction provides a private communication channel between Ethereum users and miners for efficiently communicating preferred transaction order within a block.
Flashbots Auction consists of mev-geth, a patch on top of the go-ethereum client, along with the mev-relay, a transaction bundle relayer.
Flashbots Auction is currently in version alpha-v0.4 of the roadmap.
Throughout the second half of 2020 and begining of 2021, a spike in Ethereum usage has revealed a set of negative externalities brought by MEV. These include network congestion (i.e. p2p network load) and chain congestion (i.e. block space usage) caused by inefficient communication between PGA bot operators and miners for transaction order preference. These negative externalities create a deadweight loss which is shouldered by regular Ethereum users though high gas price volatility and artificially scarce blockspace.
The incentives around MEV extraction pose an existential risk to Ethereum consensus security due to the incentivization of chain history re-orgs for extraction of past MEV (e.g. through time-bandit attacks) and incentivization of transaction routing centralization for privacy, low latency, and ordering control. These risks are considered to be existential for Ethereum as they undermine the principles of finality and permissionlessness.
We have observed and are concerned about the active development of permissioned and exclusive transaction routing infrastructure as it holds the potential to erode the neutrality, transparency, decentralization, and fairness of Ethereum today. Flashbots Auction is an open-sourced, democratic, and credibly neutral alternative which aims to mitigate the aforementioned negative externalities and existential risks.
Flashbots Auction provides a private transaction pool + a sealed bid blockspace auction mechanism which allows block producers to trustlessly outsource the work of finding optimal block construction.
In the regular Ethereum transaction pool, users broadcast transactions to the public peer-to-peer network and specify a gas price which indicates how much they are willing to pay for each unit of computation on the ethereum chain. Miners receive these transactions, order them by gas price, and use a greedy algorithm to produce a block which attempts to maximise the value received through transaction fees. This mechanism is a mix between an English auction and an all-pay auction where bidding for blockspace is performed in the open, the top bidder captures the opportunity, and all participants incur a cost.