Our Solution
The MEV-Aware Batch Auction mechanism and Net Economic Value scoring function
Reforge addresses the structural failure of Priority Gas Auctions by replacing latency-driven mempool races with a discrete, time-windowed Batch Auction.
Instead of rewarding whichever bot pays the largest gas bribe to a validator, Reforge evaluates competing bids on Net Economic Value and executes exactly one optimal liquidation per unhealthy position.
Core Contribution
Working Title
"A MEV-Aware Batch Auction Mechanism for DeFi Liquidations: Reducing Gas Competition and Collateral Loss"
Primary Contribution:
Design, implementation, and empirical evaluation of an end-to-end MEV-aware liquidation mechanism that explicitly accounts for liquidation profitability, transaction costs, competition, auction latency, and borrower/protocol outcomes.
Mechanism Overview: From Race to Batch Auction
The Scoring Function: Net Economic Value
Conventional protocols accept the first valid transaction. Reforge scores all bids submitted during the auction window using an objective economic metric:
Net Economic Value = Gross Liquidation Value − Gas Cost − DEX/Slippage Cost| Bidder | Gross Value | Gas Expenditure | DEX Slippage Impact | Net Economic Value | Rank / Decision |
|---|---|---|---|---|---|
| Liquidator A | $1,000 | $200 (High gas war) | $80 (High impact) | $720 | ❌ 3rd Place |
| Liquidator B | $1,000 | $60 (Efficient routing) | $40 (Optimized AMM) | $900 | 🏆 Winner |
| Liquidator C | $1,000 | $120 (Moderate gas) | $20 (Low impact) | $860 | ❌ 2nd Place |
Tripartite Alignment: Balancing All Three Stakeholders
A sustainable liquidation mechanism must align incentives across the three primary participants:
| Stakeholder | Conventional System (PGA) | Reforge MEV-Aware Batch Auction |
|---|---|---|
| Borrower | Suffers fixed, aggressive collateral penalties (5-10%). | Maximizes preserved equity by reducing unnecessary discounts. |
| Protocol | Transactions fail during mempool congestion; bad debt piles up. | Guaranteed single-transaction settlement with deterministic inclusion. |
| Liquidator | Surrenders 70-90% of gross margin to block proposers in gas bribes. | Retains profits based on execution and routing efficiency. |
The Critical Research Trade-Off
Every architectural decision carries trade-offs. Introducing a batch auction window requires careful scientific evaluation.
The Auction Latency Problem
In a conventional system, liquidation is immediate (next block). In Reforge, the auction window introduces a 1–2 block delay.
During this 1–2 block window, if the collateral price experiences an extreme flash crash, the position could become underwater before settlement.
The Central Research Question
Does the significant reduction in MEV gas waste and collateral loss outweigh the marginal risk introduced by auction latency?
Our empirical research platform and simulation engine (/docs/research) are designed specifically to answer this question across historical and synthetic stress-test market conditions.