The Builder-Power Dilemma: A Flaw in Modern Consensus

Builders can exclude transactions based on origin, enabling state-level censorship. This violates crypto's core neutrality and creates regulatory attack vectors.

• OFAC compliance forces builders to censor sanctioned addresses.
• ~50% of Ethereum blocks were OFAC-compliant at peak, creating a two-tier system.
• Flashbots SUAVE aims to decentralize block building, but adoption is nascent.

Builders capture the majority of Maximal Extractable Value (MEV), estimated at $1B+ annually, by reordering and inserting transactions. This is a direct tax on users.

• Arbitrage and liquidation bots are front-run by the builders themselves.
• PBS (Proposer-Builder Separation) was meant to separate roles, but builders now dominate.
• Jito and bloXroute exemplify specialized builders that optimize for MEV capture.

The competition for MEV has spawned a latency arms race, centralizing infrastructure around a few players with privileged access and capital.

• Builder dominance is measured in single-digit milliseconds of latency advantage.
• ~5 entities control the majority of Ethereum block production.
• This creates systemic risk—a failure or attack on a major builder can destabilize the chain.

Formalizing PBS at the protocol level to enforce neutrality and break builder monopolies. This is Ethereum's long-term answer.

• Decouples block building from proposing via a cryptoeconomic protocol.
• Guarantees proposer sovereignty—the final proposer chooses the header, not the builder.
• Mitigates censorship by making exclusion cryptoeconomically expensive.

Flashbots' attempt to create a decentralized, competitive marketplace for block building and cross-chain MEV. It's an application-layer fix.

• Unified auction for cross-domain MEV (Ethereum, rollups, alt-L1s).
• Encrypted mempool prevents frontrunning by separating transaction privacy from execution.
• Relies on widespread adoption by searchers and validators to succeed.

Shifts the paradigm from transaction execution to outcome fulfillment, removing the builder's ability to manipulate order. Users declare what they want, not how to do it.

• Projects like UniswapX, CowSwap, and Across use solvers to compete on fulfilling user intents.
• Reduces MEV surface area by batching and settling transactions off-chain.
• Improves UX with gasless, failed-transaction-free interactions.

Proof-of-Stake separated block proposal from validation, but builders now centralize the real power: transaction ordering. This creates a single point of failure and rent extraction between the consensus layer and execution layer.\n- Control Point: Builders like Flashbots and bloXroute dominate block space.\n- Market Size: $1B+ in annual extracted MEV creates perverse incentives.

Proposer-Builder Separation (PBS) was Ethereum's institutional answer, outsourcing complexity. It trades technical centralization for economic decentralization, creating a cartel of sophisticated actors.\n- Relay Trust: Validators must trust a ~10 relay cartel not to censor.\n- Builder Oligopoly: Top 3 builders consistently win >50% of blocks, creating systemic risk.

Solutions like Shutter Network or EigenLayer's MEV Blocker encrypt transactions to prevent frontrunning. This is a tactical fix that ignores the strategic problem: builders still control the final, decrypted bundle. Encryption adds latency and complexity but doesn't solve the power imbalance.\n- Latency Cost: Adds ~500ms-2s to block time.\n- Trust Shift: Moves trust to key management systems, a new oracle problem.

Flashbots' SUAVE aims to be a universal block builder across chains. It centralizes MEV supply and demand into one network, replacing many small oligopolies with one large one. This is efficiency at the cost of a new, protocol-level central point of control.\n- Vertical Integration: Combines mempool, solver, and builder.\n- Cross-Chain Risk: Creates a single point of failure for Ethereum, Arbitrum, Optimism.

Large staking pools like Lido and Coinbase can internalize builder operations, capturing MEV profits for their stakeholders. This merges consensus power with builder power, recreating the miner extractable value (MEV) problems of Proof-of-Work but with stake as the weapon.\n- Stake Power: Lido controls ~30% of Ethereum validators.\n- Profit Motive: >20% of validator rewards could come from MEV, aligning with censorship.

The only first-principles solution is protocol-enforced transaction inclusion, bypassing the builder entirely. This requires base-layer changes (e.g., crLists in Ethereum) to guarantee censorship resistance, but sacrifices some block space efficiency for credible neutrality.\n- Base Layer Fix: Requires hard forks and consensus changes.\n- Trade-off: ~5-10% block space reserved for non-builder tx.