Proposed MEV Extraction Model for HyperFlash

HyperFlash plans to implement an MEV auction mechanism tightly integrated with its staking protocol. While the exact implementation is under development, the high-level idea draws from successful models like Flashbots (on Ethereum), Jito (on Solana):

• Auctioning Block Space: Instead of MEV being captured ad-hoc by whoever spams hardest or by a validator privately, HyperFlash will create a formal auction each block (or each epoch). In this auction, MEV searchers (bots/traders) submit bids to get their transactions included in the next block. A bid typically consists of a set of transactions (a bundle) and a fee offer. The fee represents how much value the searcher is willing to pay the block producer for inclusion – essentially sharing the profit of the MEV opportunity. Searchers will calculate the potential profit (R) from their strategy and bid some portion of that profit as a fee. HyperFlash’s system (likely via an off-chain coordinator or on-chain contract) will collect all bids for a block.

• First-Price Sealed-Bid: HyperFlash will use a sealed-bid first-price auction format. This means searchers submit their bids without seeing others’ bids (sealed), and the highest bidder wins and pays their bid (first-price). There is no second-price or rebate – the winner pays what they offered. This model incentivizes searchers to bid honestly up to their true profitability. In fact, searchers have an optimal bidding strategy that typically lands around bidding half of the potential profit. If they bid too low, they risk losing to competitors; if they bid too high, they give away most of their profit or even risk losses. The equilibrium is that they share roughly 50% of the value. This is great for the network because it means a large chunk of MEV profit is handed to validators/stakers via the auction, rather than wasted on spam or kept entirely by searchers. It dramatically reduces network spam because each searcher only needs to send one transaction (their bid) instead of flooding the block with many attempts. As a result, the blockchain operates more efficiently and fairly: no more gas wars, just one bid per opportunity.

• Bundle Execution: The highest bid bundle (or combination of bundles) will be executed by the validator. HyperFlash’s block builder (if implemented) might try to combine multiple non-conflicting bundles to maximize value. But usually, MEV bundles conflict (e.g., two bots targeting the same arbitrage), so only one wins. The chosen bundle’s transactions are inserted into the block, yielding extra profit. The winning bid fee is then allocated to the validator/staking pool. If the auctions are run off-chain, the block builder will ensure the validator gets the promised fee (often by paying it in the block as a separate transaction or via a direct transfer to the validator’s address). If on-chain, it could be handled by a smart contract that holds bids and pays out to the winner’s specified address (which could be the staking contract).

• Validator and Searcher Participation: For this system to work, validators in HyperFlash’s set must all adhere to the auction results. They effectively outsource their block ordering to the auction mechanism. HyperFlash will likely require that any validator receiving delegation from the pool runs the approved MEV auction client (ensuring they only accept bundles through the official process). This guarantees uniform behavior – no validator should bypass the auction and strike private deals (that would undermine the fairness and the pool). On the other side, MEV searchers will be attracted to this system because it offers a more predictable and fair chance to capture opportunities. Instead of competing via speed and spam, they compete on price (whoever is willing to pay more gets the slot). This can actually lower their costs and increase their net profits, while also giving them confidence that if they win the auction, their transaction will indeed be included (not censored or front-run by the validator). Over time, we expect a robust ecosystem of searchers to participate, as they do in Ethereum’s Flashbots auctions or Solana’s Jito auctions.

• MEV Rewards Sharing: A critical aspect of HyperFlash is how the MEV auction revenue is shared. The intent is to channel the majority of this MEV profit to the stakers, since they are the ones contributing capital and securing the network. In practice, the fee from the winning bid can be split between the validator operator and the staking pool. For example, HyperFlash might set a policy like “90% of MEV auction proceeds go to the pool, 10% to the validator operator.” This gives validators an incentive to participate (they earn a commission for their service), but ensures the bulk is passed to flashHYPE holders. The exact split can be tuned via governance. Jito’s implementation effectively shares MEV with stakers by adding it to the pool for JitoSOL, and a similar concept applies here. Once the pool receives MEV fees, those are treated just like additional staking rewards – they will cause flashHYPE to grow accordingly, boosting all holders’ balances.

• Economic and Fairness Considerations: The planned MEV strategy is grounded in game-theoretic thinking to align incentives:

  • Validators will follow the auction protocol because it increases their earnings (even after sharing with stakers, their slice of a bigger pie is still good income) and because misbehavior (like stealing a bundle without sharing) would be detectable and lead to their removal by governance.

  • Searchers are incentivized to bid their true value, not to spam. The rational strategy for a searcher is to submit one well-calibrated bid rather than many transactions. They know that only the highest bid matters, so overbidding hurts them and underbidding means losing the opportunity. This mechanism makes the whole system incentive-compatible – doing the “right thing” (bidding honestly, not spamming) is the best strategy for all players.

  • The community benefits because MEV, which used to be seen as a toxic byproduct of block production, becomes an additional transparent revenue stream for all stakers. It democratizes what used to be reserved for elite miners or insiders.

  • From a fairness perspective, this auction approach also levels the playing field: block producers can’t arbitrarily extract value since they must accept the auction outcome, and users (stakers) get a piece of the action rather than being entirely victim to MEV. It’s a more egalitarian distribution of value that would otherwise be hidden.