Ethereum’s evolution reflects a constant effort to balance decentralization, security, and scalability. A key concept in this journey is Proposer-Builder Separation (PBS), designed to address challenges introduced by Maximal Extractable Value (MEV). This article explores the history, current state, and future potential of PBS.
How We Got Here: The Early Days of Ethereum Block Production
In Ethereum’s initial design, a single entity—a miner or validator—handled the entire block production process. This involved collecting transactions from the mempool, ordering them, and creating a valid block header. During Ethereum’s early years, block construction was straightforward. Miners selected transactions based primarily on gas fees, adhering to block gas limits.
The rise of decentralized finance (DeFi) dramatically changed this dynamic. In DeFi applications, the order of transactions within a block can significantly impact financial outcomes. For example, if a user swaps ETH for a token on a decentralized exchange, the amount received depends on the pool’s state exactly when their transaction is processed. If another transaction executes just before it, the user may receive fewer tokens due to shifting exchange rates.
This realization led to the emergence of MEV—Maximal Extractable Value (originally "Miner Extractable Value"). MEV represents the profit that miners or validators can earn by selectively including, excluding, or reordering transactions. While MEV creates additional economic incentives, it also introduced risks. Without safeguards, MEV could become a centralizing force, as those with advanced technical resources and algorithms could outperform smaller participants.
The Rise of MEV and Centralization Risks
MEV might seem beneficial at first glance—extra rewards could encourage more participation in network security. However, in practice, MEV extraction favored those with sophisticated infrastructure. Individual validators running on basic hardware were often left with lower returns, creating economic pressure to delegate their stake to large, professionalized operations. This trend threatened Ethereum’s foundational goal of decentralization.
Flashbots and the Birth of PBS
Phil Daian, a researcher at Cornell University, was among the first to identify MEV-related risks. His work highlighted issues like front-running and sandwich attacks, where bots profit by manipulating transaction order. In response, he co-founded Flashbots, an organization dedicated to MEV research and solutions.
Flashbots introduced MEV-Geth, a tool that implemented an early form of PBS. It allowed "searchers" (entities that identify MEV opportunities) to submit transaction bundles directly to miners. Miners would then select the bundles with the highest fees, creating a competitive auction market for block space. This approach helped democratize MEV access while ensuring miners captured most of the value.
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The Current Landscape: MEV-Boost and Validator Practices
Ethereum’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) marked a significant shift. In PoS, validators—not miners—are responsible for proposing and attesting to blocks. This change required adapting MEV extraction mechanisms to a new trust model.
Flashbots developed MEV-Boost, a middleware solution that allows validators to outsource block construction to specialized builders. Here’s how it works:
- Builders construct blocks optimized for MEV and submit bids to relays.
- Relays validate these blocks and forward the most profitable options to validators.
- Validators select the highest bid, sign the block header, and propose the block to the network.
Today, over 95% of Ethereum validators use MEV-Boost, meaning most blocks are built by third-party builders rather than validators themselves. This system has introduced new challenges around trust, censorship resistance, and centralization. For example, some relays filter transactions based on regulatory compliance, leading to concerns about network neutrality.
The Future: Protocol-Enforced Proposer-Builder Separation (ePBS)
Ethereum developers are working to integrate PBS directly into the protocol, a upgrade known as ePBS. This aims to reduce reliance on external relays and create a more trust-minimized system.
Proposed Designs for ePBS
Several designs are under consideration:
- Two-Slot ePBS: This model splits block production across two slots (24 seconds). In the first slot, builders bid for the right to construct a block. The proposer commits to a bid, and attestors vote on its validity. In the second slot, the winning builder reveals the full block.
- Payload Timeliness Committees: This approach introduces a committee to verify that blocks are published on time and are valid.
- Slot Auctions: Builders could bid for the right to produce a block in a future slot, providing more flexibility for cross-domain MEV strategies.
Enhancing Decentralization with PEPC
Protocol-Enforced Proposer Commitments (PEPC) is another innovation being explored. PEPC would allow proposers to set custom conditions for block validity, such as including certain transactions or allocating gas in specific ways. This would give validators more influence over block production without requiring them to become full-fledged builders.
The Role of Builders in Scaling Ethereum
Advanced builders are expected to play a key role in Ethereum’s scaling roadmap. For example:
- They could enable danksharding by constructing large blocks with extensive data availability.
- They might act as sequencers for rollups, helping to optimize transaction ordering and reduce latency.
- They could support stateless clients by generating cryptographic proofs for state transitions.
Frequently Asked Questions
What is Proposer-Builder Separation (PBS)?
PBS is a design pattern that separates the roles of block proposal and block construction. Validators (proposers) choose the most profitable block from a competitive market of builders, who specialize in optimizing transaction order for MEV.
Why is PBS important for Ethereum?
PBS helps mitigate MEV-related centralization risks. By allowing validators to delegate block construction, it ensures that even small stakeholders can participate effectively while still earning competitive rewards.
How does MEV-Boost work?
MEV-Boost is software that lets validators connect to a network of relays and builders. Builders submit blocks with bids, relays validate them, and validators select the highest bid. This allows validators to earn MEV rewards without needing complex infrastructure.
What are the risks of the current MEV-Boost system?
The system relies on trusted relays, which could censor transactions or fail technically. It also introduces latency and complexity compared to native block production.
How will ePBS improve Ethereum?
ePBS will integrate block auction mechanisms directly into the protocol, reducing reliance on external relays and enhancing censorship resistance. It will also provide stronger economic guarantees for builders and proposers.
What is the relationship between PBS and rollups?
PBS could enable based rollups, where L1 builders also act as sequencers for L2 networks. This would improve efficiency and interoperability across Ethereum’s layers.
Conclusion
Proposer-Builder Separation represents a critical innovation in Ethereum’s evolution. By creating a specialized market for block production, PBS helps balance efficiency with decentralization. Future upgrades like ePBS and PEPC will further refine this model, ensuring that Ethereum remains secure, scalable, and accessible to all participants.
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As Ethereum continues to evolve, PBS will play an essential role in maintaining network health and promoting fair access to MEV opportunities. The community’s focus on research and implementation ensures that these systems will grow more robust and decentralized over time.