The Future of Transaction Sequencing is a Bundler Cartel

The bundler is the block builder. In an account abstraction (ERC-4337) future, the entity that sequences user operations (UserOps) for inclusion on-chain controls the mempool. This role mirrors the block builder in today's MEV supply chain, creating a direct path to market power.

Sequencing is the new mining. The profit motive for orderflow will drive consolidation, just as it did for Proof-of-Work mining pools. The most efficient bundlers, like Pimlico or Stackup, will capture dominant market share by offering the best execution and highest subsidies.

The cartel is a feature, not a bug. A stable, predictable sequencing cartel reduces fragmentation, enabling complex cross-domain intents. This is the necessary infrastructure for systems like UniswapX and Across Protocol to function reliably at scale.

Evidence: Look at Solana. Jito Labs, by controlling a majority of block production through its client and MEV services, demonstrates the natural endpoint of this economic logic. The same forces apply to the bundler network.

The builder market consolidates. The competitive advantage in block building is capital efficiency and data access, not decentralization. Entities like Flashbots and Jito Labs win by operating private orderflow connections and sophisticated MEV strategies, creating insurmountable moats.

Decentralization is a tax. A truly decentralized sequencer set, as envisioned by early rollup teams, sacrifices extractable value and latency. The profit-maximizing equilibrium is a small consortium that coordinates to maximize MEV, mirroring the miner extractable value (MEV) cartelization seen in Ethereum's PBS.

The cartel is a feature. This consolidation provides predictable finality and liveness for applications, which matters more to end-users than the myth of permissionless sequencing. The cartel becomes a regulated, high-availability utility, similar to AWS regions.

Evidence: Look at L1. Ethereum's Proposer-Builder Separation (PBS) created a builder oligopoly within three months. The top three builders consistently produce over 80% of blocks. This pattern will repeat in rollup sequencing, accelerated by shared sequencing layers like Espresso and Astria.

Permissionless competition is unsustainable. The ERC-4337 standard allows anyone to run a bundler, creating a commodity market where the only differentiator is price. This drives user operation fees to near-zero, eliminating profitability for operators and disincentivizing infrastructure investment.

Fragmentation destroys user experience. Users must trust dozens of independent bundlers like Pimlico, Stackup, and Alchemy for reliable inclusion. This creates a single point of failure landscape where one bundler's downtime breaks entire dApps, unlike the redundancy of Ethereum's base layer.

The economic model is broken. Bundlers earn only priority fees from user operations, a revenue stream orders of magnitude smaller than the MEV extraction available to L1 block builders. This misalignment guarantees that the most sophisticated actors will eventually dominate and consolidate the market.

Evidence: The top three bundlers process over 60% of all ERC-4337 volume, demonstrating early centralization pressure despite the permissionless design. This is a precursor to formal cartelization.

Sequencers capture maximal value. As the sole block producer for a rollup, the sequencer controls transaction order, inclusion, and MEV extraction. This position generates profits from fees, arbitrage, and front-running, creating a powerful centralizing force.

Decentralization is a tax, not a feature. Projects like Arbitrum and Optimism propose decentralized sequencing via staking or committees. This adds latency and cost, which users and applications reject for the speed of a single, efficient operator.

The cartel forms via vertical integration. Dominant players like Flashbots' SUAVE or Lido's potential expansion will bundle sequencing across chains. They leverage existing stake and liquidity to offer 'better' execution, locking in market share.

Evidence: Look at L2 revenue. Over 90% of Arbitrum and Optimism sequencing is controlled by their founding entities. The profit per sequenced transaction far exceeds the cost, proving the model's extractive nature.

Bundlers are not validators. Adding more bundlers does not decentralize the sequencer role. The winning bidder for a block space bundle holds a temporary monopoly on ordering, creating a per-block cartel.

Economic centralization is inevitable. The MEV extraction race favors the largest, best-capitalized operators like Flashbots and BloXroute. Smaller bundlers get outbid and excluded from profitable blocks.

Technical barriers create oligopoly. Running a competitive bundler requires low-latency infrastructure and sophisticated MEV software, mirroring the Ethereum validator centralization problem seen with Lido.

Evidence: On Ethereum L2s today, over 90% of blocks are produced by the single, official sequencer. A multi-bundler future replicates this model with a rotating cast of the same few players.

Regulatory pressure is inevitable for permissionless sequencers. The SEC's stance on staking-as-a-service and OFAC compliance for validators creates a precedent. A bundler cartel emerges not from collusion, but from regulatory arbitrage, where compliant entities capture market share.

Institutional capital demands compliance. Entities like JPMorgan's Onyx or Fidelity Digital Assets will not route orders through anonymous, permissionless sequencers. They will demand KYC'd, audited, and licensed bundler infrastructure, creating a bifurcated market.

Technical decentralization becomes a liability. The censorship-resistant sequencing of SUAVE or Espresso becomes a regulatory target, not a feature, for mainstream financial activity. This forces a split between compliant L2s and permissionless 'dark pool' chains.

Evidence: The migration of MEV-Boost relays towards OFAC compliance shows the path. Over 90% of Ethereum blocks are now OFAC-compliant, demonstrating that regulatory pressure directly shapes infrastructure centralization.