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Flashback: Enhancing Proposer-Builder Design with Future-Block Auctions in Proof-of-Stake Ethereum

Yifan Mao, Mengya Zhang, Shaileshh Bojja Venkatakrishnan, Zhiqiang Lin

TL;DR

The analysis shows the existence of alternative auction mechanisms that result in a better (more profitable) equilibrium to players compared to state-of-the-art, and highlights that a rethinking of auction mechanism designs is necessary in PoS Ethereum to prevent disruption.

Abstract

Maximal extractable value (MEV) in which block proposers unethically gain profits by manipulating the order in which transactions are included within a block, is a key challenge facing blockchains such as Ethereum today. Left unchecked, MEV can lead to a centralization of stake distribution thereby ultimately compromising the security of blockchain consensus. To preserve proposer decentralization (and hence security) of the blockchain, Ethereum has advocated for a proposer-builder separation (PBS) in which the functionality of transaction ordering is separated from proposers and assigned to separate entities called builders. Builders accept transaction bundles from searchers, who compete to find the most profitable bundles. Builders then bid completed blocks to proposers, who accept the most profitable blocks for publication. The auction mechanisms used between searchers, builders and proposers are crucial to the overall health of the blockchain. In this paper, we consider PBS design in Ethereum as a game between searchers, builders and proposers. A key novelty in our design is the inclusion of future block proposers, as all proposers of an epoch are decided ahead of time in proof-of-stake (PoS) Ethereum within the game model. Our analysis shows the existence of alternative auction mechanisms that result in a better (more profitable) equilibrium to players compared to state-of-the-art. Experimental evaluations based on synthetic and real-world data traces corroborate the analysis. Our results highlight that a rethinking of auction mechanism designs is necessary in PoS Ethereum to prevent disruption.

Flashback: Enhancing Proposer-Builder Design with Future-Block Auctions in Proof-of-Stake Ethereum

TL;DR

The analysis shows the existence of alternative auction mechanisms that result in a better (more profitable) equilibrium to players compared to state-of-the-art, and highlights that a rethinking of auction mechanism designs is necessary in PoS Ethereum to prevent disruption.

Abstract

Maximal extractable value (MEV) in which block proposers unethically gain profits by manipulating the order in which transactions are included within a block, is a key challenge facing blockchains such as Ethereum today. Left unchecked, MEV can lead to a centralization of stake distribution thereby ultimately compromising the security of blockchain consensus. To preserve proposer decentralization (and hence security) of the blockchain, Ethereum has advocated for a proposer-builder separation (PBS) in which the functionality of transaction ordering is separated from proposers and assigned to separate entities called builders. Builders accept transaction bundles from searchers, who compete to find the most profitable bundles. Builders then bid completed blocks to proposers, who accept the most profitable blocks for publication. The auction mechanisms used between searchers, builders and proposers are crucial to the overall health of the blockchain. In this paper, we consider PBS design in Ethereum as a game between searchers, builders and proposers. A key novelty in our design is the inclusion of future block proposers, as all proposers of an epoch are decided ahead of time in proof-of-stake (PoS) Ethereum within the game model. Our analysis shows the existence of alternative auction mechanisms that result in a better (more profitable) equilibrium to players compared to state-of-the-art. Experimental evaluations based on synthetic and real-world data traces corroborate the analysis. Our results highlight that a rethinking of auction mechanism designs is necessary in PoS Ethereum to prevent disruption.
Paper Structure (33 sections, 7 theorems, 16 equations, 7 figures)

This paper contains 33 sections, 7 theorems, 16 equations, 7 figures.

Table of Contents

  1. Introduction
  2. Background
  3. Ethereum
  4. MEV, Builders, and Proposers
  5. Model
  6. System Model
  7. Problem statement
  8. Flashback Builder Design
  9. Private transaction bidding
  10. Threshold $\rho$ and rate $r_1$
  11. Analysis
  12. Validator and Builder Rewards
  13. Equilibrium Analysis
  14. Evaluation
  15. Experiment Setup
  16. ...and 18 more sections

Key Result

Lemma 1

For $r_1 = 0, \rho > \mu_2$ and $\mu_2 < 1/2$, we have $\mathbf{E}[V_p^\mathrm{policy}[t]] > \mathbf{E}[V_p^\mathrm{default}[t]]$.

Figures (7)

  • Figure 2: Example showing a timeline of messages exchanged. We assume proposer $t$ has not accepted a bid during time $t-1$. It is also possible for the Flashback builder to not issue a bid during a round.
  • Figure 3: Share of user payments and percentile of private transactions
  • Figure 4: Rewards distributions
  • Figure 5: Primary builder starts with different initial states
  • Figure 6: Different policy strategy to bid 1 to 20 transactions
  • ...and 2 more figures

Theorems & Definitions (7)

  • Lemma 1
  • Lemma 2
  • Theorem 3
  • Proposition 1: Validator reward when following Flashback policy
  • Proposition 2: Validator reward when following default policy
  • Proposition 3: Primary builder reward
  • Proposition 4: Secondary builder reward