Decentralization of Ethereum's Builder Market

TL;DR

This paper empirically analyzes the decentralization of Ethereum's builder market under Proposer-Builder Separation (PBS) and MEV-Boost, documenting that two builders dominate block production, accounting for over $85\%$ of blocks. Using two large-scale auction datasets (roughly $12$ billion partial bids and $301{,}479$ full bids) plus on-chain data, the authors quantify proposer losses, showing that about $91.8\%$ of auctions are competitive but inequality in block-building capacity yields losses of $5.6\%$ to $11.5\%$ (and up to dramatic losses in 2024). They demonstrate that private order flows contribute to over $80\%$ of block value in many blocks, with several pivotal providers achieving exclusive integrations with top builders like Titan and Beaver, thereby intensifying centralization and undermining the MEV-Boost oracle. The paper argues that mitigating these issues requires not only alternative PBS designs but also strong security guarantees for order-flow providers and robust game-theoretic incentives to prevent integration, marking a critical step toward secure, decentralized MEV ecosystems. $12$, $301{,}479$, $80\%$, and other quantities are reported with explicit formulas throughout to anchor the analysis.

Abstract

Blockchains protect an ecosystem worth more than $500bn with strong security properties derived from the principle of decentralization. Is today's blockchain decentralized? In this paper, we empirically studied one of the least decentralized parts of Ethereum, its builder market. The builder market was introduced to fairly distribute Maximal Extractable Value (MEV) among validators and avoid validator centralization. As of the time of writing, two builders produced more than 85% of blocks in Ethereum, creating a concerning centralization factor. However, a common belief is that such centralization "is okay," arguing that builder centralization will not lead to validator centralization. In this empirical study, we quantify the significant proposer losses within the centralized builder market and challenge the belief that this is acceptable. The significant proposer losses, if left uncontrolled, could undermine the goal of PBS. Moreover, MEV mitigation solutions slated for adoption are affected too because they rely on the builder market as an "MEV oracle," which is made inaccurate by centralization. Our investigation reveals the incentive issue within the current MEV supply chain and its implications for builder centralization and proposer losses. Finally, we analyze why the proposed mitigation cannot work and highlight two properties essential for effective solutions.

Figures (14)

• Figure 1: Market share of builders (the source of the data is introduced in \ref{['sec:dataset']}). The builder market is one of the least decentralized parts of Ethereum!
• Figure 2: Definition of proposer losses.
• Figure 3: Illustration of the MEV supply chain in the PBS scheme.
• Figure 4: The distribution of CI and EI, where each dot represents an auction. The color represents density when multiple dots overlap. 91.8% of the MEV-Boost auctions are competitive (sum of the slots having $CI\geq0$), and 75.1% of them are efficient (sum of the slots with $EI>0$). Dots on the diagonal line ($CI=EI$) are auctions where the winners bid the true values. The dots above this line are auctions where the winners bid lower than true values.
• Figure 5: The ratio of auctions that are competitive and efficient across various MEV tiers.