Why auction matching?
Block-based micro auctions offer significant, structural advantages over CLOBs. By replacing continuous time-priority with rapid, uniform-price auctions each block, markets stop rewarding raw latency and start rewarding better pricing. Traders get tighter spreads, larger executable size and fairer prices, with far less extraction from middlemen.
Block-based micro auctions are not just a novel mechanism but the inevitable successor to today’s continuous-time CLOBs—replacing their value-extractive speed games with a fairer, more liquid, and more efficient market design.
Auctions are everywhere
Auctions are not novel. They are one of the most widespread and trusted mechanisms for allocating limited resources efficiently:
Advertising. Google’s ad marketplace is essentially a continuous sequence of auctions, allocating billions of impressions every day. Advertisers compete on price, not speed.
Government debt. U.S. Treasuries and other sovereign bonds are issued through uniform-price auctions, reflecting the principle that collective price discovery yields fairness and efficiency.
Stock exchange opens. Call auctions are already used at the market open and close, when liquidity is deepest and price discovery most critical. The Nikkei and other markets also use auctions to handle large block trades or imbalances.
Everyday markets. From art to electricity procurement, auctions dominate when price is the variable that matters.
The pattern is clear: whenever markets care primarily about value, rather than instant execution, auctions emerge as the superior mechanism. In electronic trading it’s the same equation. For most traders, the difference between 10ms and 100ms is irrelevant. What matters is execution quality—the price they trade at. By running very short, frequent auction windows—short enough to feel “instant” to humans—we can make price, not speed, the axis of competition in financial markets.
The problem with CLOBs
Despite their ubiquity, central limit order books (CLOBs) embody design flaws that have grown increasingly evident:
Latency arbitrage. CLOBs reward being first in line. Traders with microsecond advantages extract money from slower participants, without offering better prices or adding value.
Adverse liquidity impact. Market makers who quote tight spreads are punished the moment the market moves. Fast takers instantly lift their stale quotes, leading to losses. To defend themselves, makers widen spreads or reduce size—hurting liquidity for everyone else.
Arms race. In TradFi, HFTs have spent billions on microwave towers, colocation, and even satellite links to enable latency arbitrage. In crypto, we see equivalents: fast networking links, specialized relays, and bots competing in priority gas auctions. None of this improves execution quality for end users. It is purely value-extractive—a zero-sum race that consumes resources and human ingenuity without delivering better markets.
Real-world data backs this. Continuous time-priority induces a never-ending, socially wasteful arms race for speed that hurts liquidity. In DeFi, MEV and transaction reordering further amplify the problem.
The bottom line: time-priority benefits only the fastest intermediaries. It does not deliver tighter spreads or better outcomes for natural buyers and sellers. It often raises their costs. This is the structural flaw that block-based micro auctions are designed to solve.
What is a block-based micro auction?
On Rocket, each block is an independent auction - typically lasting ~100ms. During each block:
Traders submit limit orders or cancels.
At block close, aggregate demand and supply are constructed.
A uniform clearing price is chosen to maximize executable volume.
All eligible orders execute at that same price, with pro-rata allocation at the margin.
Residual orders either roll forward or expire.
The defining property is that no time-priority exists within the block. Whether an order arrives first or last within the interval is irrelevant; all are treated as simultaneous. The only dimensions that matter are price and size.
To traders, it feels continuous—blocks are so short that the experience of placing an order and seeing a fill remains effectively instantaneous. But under the hood, the incentives are completely restructured: latency no longer pays, and price does.
The big innovation of blockchains was reaching distributed consensus on each block. Auction matching extends this principle to reach consensus on price.
Examples
1. Natural cross → mutual gain
Alice submits a buy for 10 units at ≤ 100.10.
Bob submits a sell for 10 units at ≥ 100.00.
CLOB outcome: Alice’s trade executes at 100.10; Bob later sells at 100.00. The spread accrues to intermediaries.
Micro auction outcome: At block close, the clearing price is ~100.05. Alice buys below her max; Bob sells above his min. Both gain, and surplus stays with them.
2. Adverse selection damped
A maker posts an ask at 100.10.
Fair value suddenly jumps to 101.00.
CLOB outcome: A fast taker instantly lifts the 100.10 offer; the maker sells far below fair value.
Micro auction outcome: New buy orders enter the batch, and the clearing price rises to ~100.90. The maker still sells below fair, but much closer. Losses are cushioned, and the maker remains willing to quote tightly in future.
How auctions outperform CLOBs
The structural impacts of block-based micro auctions are powerful:
Tighter spreads. Without the threat of adverse selection or constant sniping, market makers no longer have to pad quotes. When competition shifts from speed to price, spreads tighten and quotes move closer to fair value.
Deeper books. Pro-rata allocation encourages showing meaningful size. It’s rational to display depth, and books become deeper.
Better execution for big trades. Large marketable orders clear at one price, not fragmented across a flickering book triggering price impact.
Fairer prices for everyone. When buy and sell interest overlaps, clearing happens inside the spread. Buyers pay less, sellers get more. Surplus flows to traders, not intermediaries.
MEV and other value extraction vanish. Because all orders clear together, there is no “first” transaction to front-run. The usual extractive games disappear—and value stays with participants.
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