This work introduces a framework for evaluating onchain order flow auctions (OFAs), emphasizing the metric of price improvement. Utilizing a set of open-source tools, our methodology systematically attributes price improvements to specific modifiable inputs of the system such as routing efficiency, gas optimization, and priority fee settings. When applied to leading Ethereum-based trading interfaces such as 1Inch and Uniswap, the results reveal that auction-enhanced interfaces can provide statistically significant improvements in trading outcomes, averaging 4-5 basis points in our sample. We further identify the sources of such price improvements to be added liquidity for large swaps. This research lays a foundation for future innovations in blockchain based trading platforms.
@article{arxiv.2405.00537,
title = {Quantifying Price Improvement in Order Flow Auctions},
author = {Brad Bachu and Xin Wan and Ciamac C. Moallemi},
journal= {arXiv preprint arXiv:2405.00537},
year = {2024}
}