Impact of Volatility on Time-Based Transaction Ordering Policies

ArXiv ID: 2512.23386 “View on arXiv”

Authors: Sunghun Ko, Jinsuk Park

Abstract

We study Arbitrum’s Express Lane Auction (ELA), an ahead-of-time second-price auction that grants the winner an exclusive latency advantage for one minute. Building on a single-round model with risk-averse bidders, we propose a hypothesis 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. We test these predictions using ELA bid records matched to high-frequency ETH prices and find that the result is consistent with the model.

Keywords: Auction Theory, Blockchain, High-Frequency Trading, Latency Advantage, Risk Aversion, Cryptocurrency

Complexity vs Empirical Score

• Math Complexity: 8.5/10
• Empirical Rigor: 7.0/10
• Quadrant: Holy Grail
• Why: The paper employs advanced stochastic calculus and theoretical derivations for arbitrage profit models and bidder valuation under risk aversion, while backing these claims with high-frequency ETH price data and auction bid records from Arbitrum’s ELA.

  flowchart TD
    A["Research Goal<br/>Quantify how volatility & risk aversion<br/>affect the value of priority access<br/>in Arbitrum's Express Lane Auction"] --> B["Theoretical Model<br/>Single-round, second-price auction<br/>Risk-averse bidders<br/>Hypothesis: Value ≈ f(risk, volatility forecast)"]
    B --> C["Data & Methods<br/>Match ELA bid records to<br/>high-frequency ETH price data"]
    C --> D["Computation<br/>Estimate volatility & test<br/>bid sensitivity to price uncertainty"]
    D --> E["Key Findings<br/>Priority access value is discounted<br/>relative to risk-neutral valuation<br/>Consistent with model predictions"]