Proposer-Builder Separation (PBS)

MEV Capture and Decentralization in Execution Tickets ArXiv ID: 2408.11255 “View on arXiv” Authors: Unknown Abstract We provide an economic model of Execution Tickets and use it to study the ability of the Ethereum protocol to capture MEV from block construction. We demonstrate that Execution Tickets extract all MEV when all buyers are homogeneous, risk neutral and face no capital costs. We also show that MEV capture decreases with risk aversion and capital costs. Moreover, when buyers are heterogeneous, MEV capture can be especially low and a single dominant buyer can extract much of the MEV. This adverse effect can be partially mitigated by the presence of a Proposer Builder Separation (PBS) mechanism, which gives ET buyers access to a market of specialized builders, but in practice centralization vectors still persist. With PBS, ETs are concentrated among those with the highest ex-ante MEV extraction ability and lowest cost of capital. We show how it is possible that large investors that are not builders but have substantial advantage in capital cost can come to dominate the ET market. ...

The cost of artificial latency in the PBS context ArXiv ID: 2312.09654 “View on arXiv” Authors: Unknown Abstract We present a comprehensive analysis of the implications of artificial latency in the Proposer-Builder Separation framework on the Ethereum network. Focusing on the MEV-Boost auction system, we analyze how strategic latency manipulation affects Maximum Extractable Value yields and network integrity. Our findings reveal both increased profitability for node operators and significant systemic challenges, including heightened network inefficiencies and centralization risks. We empirically validates these insights with a pilot that Chorus One has been operating on Ethereum mainnet. We demonstrate the nuanced effects of latency on bid selection and validator dynamics. Ultimately, this research underscores the need for balanced strategies that optimize Maximum Extractable Value capture while preserving the Ethereum network’s decentralization ethos. ...