Volatility Impact on Transaction Ordering
Analysis
This paper investigates the impact of volatility on the valuation of priority access in a specific auction mechanism (Arbitrum's ELA). It hypothesizes and provides evidence that risk-averse bidders discount the value of priority due to the difficulty of forecasting short-term volatility. This is relevant to understanding the dynamics of transaction ordering and the impact of risk in blockchain environments.
Key Takeaways
- •The study focuses on Arbitrum's Express Lane Auction (ELA).
- •It examines how volatility affects the valuation of priority access.
- •Risk-averse bidders discount priority access due to volatility forecasting challenges.
- •The findings are supported by empirical evidence from ELA bid records and ETH price data.
Reference
“The paper finds that the value of priority access is discounted relative to risk-neutral valuation due to the difficulty of forecasting short-horizon volatility and bidders' risk aversion.”