Burak Öz

Sen Yang, Burak Öz, Fei Wu et al.

Decentralization has an important geographic dimension that conventional metrics, such as stake distribution, often overlook. Validator location affects resilience to regional shocks (e.g., outages, natural disasters, or government intervention) as well as fairness in reward access. Yet major blockchain protocols do not encode geographical location in their rules; instead, validator locations emerge from a combination of economic incentives, regulatory constraints, infrastructure availability, and validator deployment choices. When some locations offer systematic advantages, validators may strategically co-locate to increase expected rewards, as in Ethereum, where validators cluster along the Atlantic corridor, which exhibits favorable latency. In this paper, we develop a formal model of validators' geographical positioning incentives under Ethereum's protocol design, capturing the interaction between its two block-building paradigms, local and external block building, and the distribution of validators and information sources. We analyze the model under a mean-field approximation and complement it with agent-based simulations calibrated with real-world latency data to quantify how these incentives translate into geographical concentration under heterogeneous geographic and infrastructural conditions. Our results show that Ethereum's block-building architecture is not geographically neutral. Both paradigms create location-dependent payoffs and incentives to move closer to payoff-relevant parties to reduce propagation delays, though through different mechanisms. Asymmetric access to information sources further increases geographical centralization. We also show that consensus parameters, including attestation thresholds and slot times, affect latency sensitivity and can strengthen these effects. Finally, we discuss implications for protocol design and possible mitigation directions.

Burak Öz, Christoph Schlegel, Akaki Mamageishvili

We study Arbitrum's Timeboost mechanism following the adoption of Kairos by its main users -- Wintermute and Selini Capital -- to understand how the emergence of a just-in-time secondary market affects the dynamics of an ahead-of-time primary auction. We find that competition in the primary auction significantly declines and surplus shifts away from Arbitrum. After the transition, bids paid in the primary auction correspond to only 14.8\% of the highest bid (compared to nearly 62.7\% in the \textit{Pre-Kairos} era), and a lower share of searcher profit-and-loss (PnL), despite total PnL (gross of auction payments) remains of similar magnitude across regimes. This indicates that the primary auction effectively ceases to function as a meaningful surplus extraction mechanism. Although demand for time-boosting valuable CEX--DEX arbitrage transactions continues to increase with external price volatility, observed bids in the Timeboost auction no longer reflect this demand. While the exact distribution of the additional value between searchers and Kairos remains unclear, the evidence suggests that the secondary market captures a substantial share at the expense of the primary auctioneer. We conclude by outlining possible ways for Arbitrum to recapture this value, including modifying the auction design to reduce the gap between value and payments and adopting a dynamic reserve price.