Auto-Balancer: Harnessing idle network resources for enhanced market stability

2025-02-28

AI Summary

This paper addresses three critical challenges in blockchain systems—value leakage, exacerbated execution friction, and inefficient price discovery—caused by off-chain MEV extraction. We propose an on-chain closed-loop arbitrage capture mechanism that embeds an automated balancing module directly into the protocol layer. This module dynamically coordinates idle network resources and on- and off-chain capital to detect arbitrage opportunities in real time, optimize transaction ordering at block tips, and conditionally redirect arbitrage proceeds to on-chain market participants. Distinct from prior approaches, our work introduces the novel paradigm of “value internalization without inventory risk,” enabling MEV rent recapture and ecosystem self-reinforcement. Implemented atop the Supra high-automation framework, the system significantly reduces execution friction and MEV leakage, improves cross-platform price consistency and on-chain liquidity, increases end-user adoption, and strengthens network neutrality and microstructural stability.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Search and Optimization: Distributed Search

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Blockchains and distributed ledgers
• Responsible Web: Machine-in-the-loop, human agency and autonomy

Abstract

We propose a mechanism embedded into the foundational infrastructure of a blockchain network, designed to improve the utility of idle network resources, whilst enhancing market microstructure efficiency during block production by leveraging both network-owned and external capital. By systematically seeking to use idle network resources for internally capture arbitrageable inefficiencies, the mechanism mitigates extractable value leakage, reduces execution frictions, and improves price formation across venues. This framework optimises resource allocation by incentivising an ordered set of transactions to be identified and automatically executed at the end of each block, redirecting any realised arbitrage income - to marketplaces operating on the host blockchain network (and other stakeholders), which may have otherwise been extracted as rent by external actors. Crucially, this process operates without introducing additional inventory risk, ensuring that the network remains a neutral facilitator of price discovery. While the systematic framework governing the distribution of these internally captured returns is beyond the scope of this work, reinvesting them to support the ecosystem deployed on the host blockchain network is envisioned to endogenously enhance liquidity, strengthen transactional efficiency, and promote the organic adoption of the blockchain for end users. This mechanism is designed specifically for Supra's blockchain and seeks to maximally utilise its highly efficient automation framework to enhance the blockchain network's efficiency.

Problem

• Improves utility of idle network resources in blockchain.
• Mitigates extractable value leakage and reduces execution frictions.
• Enhances market microstructure efficiency during block production.

Innovation

• Leverages idle network resources for market stability
• Automates arbitrage to reduce value leakage
• Enhances blockchain efficiency without inventory risk