Batch Auctions

Understanding Batch Auctions

Batch auctions are a type of trading mechanism that involves grouping individual orders together and executing them simultaneously. These orders are settled at a uniform clearing price, which offers the advantage of aggregated liquidity. Batch auctions are commonly used in both decentralized and traditional finance to ensure fair price discovery.

When it comes to blockchains, batch auctions serve various purposes, including initial token offerings, liquidations, buybacks of illiquid assets, and prevention of MEV (Miner Extractable Value). One significant benefit of batch auctions is their resilience to MEV, as the order in which trades are executed within a batch does not affect the price.

Traditionally, batch auctions operate on a single token pair, similar to order books. However, there is a special case called multi-dimensional batch auctions, where orders between multiple token pairs can be settled in the same batch. This is particularly advantageous for fragmented token spaces (such as USD-stablecoins) or less liquid token pairs (such as certain insurance or prediction market outcome tokens) because trades can occur in rings rather than solely between direct counterparties.

Author:

Felix became a full-time member of the Ethereum ecosystem in 2018 after spending 3 years working on encrypted messaging infrastructure at Facebook. He currently leads the engineering team for Gnosis Protocol, the decentralized trading protocol of Gnosis, which develops new market mechanisms for decentralized finance.