Centralized block production is the critical, unaddressed flaw in modern Proof-of-Stake. While consensus is decentralized, the actual construction of blocks is concentrated with a few professional entities like Jito Labs and bloXroute, creating a single point of failure.
liquid-staking-and-the-restaking-revolution
Blog
Why Centralized Block Production in PoS is a Critical Flaw
The separation of block proposal and building, designed for MEV efficiency, has backfired. It has created a centralized supply chain of builders and relays that now control transaction ordering and inclusion, undermining the core decentralization promise of Proof-of-Stake.
introduction
THE CORE FLAW
Introduction
Proof-of-Stake's reliance on centralized block production creates a systemic risk that undermines its decentralization guarantees.
Decentralization is performative when block building is centralized. The network's liveness and censorship-resistance depend on a handful of actors, not the thousands of validators. This is the MEV supply chain problem, where builders like Flashbots dominate the flow of transactions.
The validator-builder separation (PBS) in Ethereum's roadmap acknowledges this flaw but outsources the solution. Without enforced PBS, staking pools like Lido and Coinbase inherently centralize block production power, replicating the miner centralization of Proof-of-Work.
key-trends
THE ARCHITECTURAL FAILURE
The Centralization Triad: How We Got Here
Proof-of-Stake's promise of decentralization was broken by three convergent design choices that created systemic MEV capture points.
01
The MEV Cartel Problem
The separation of block building from block proposing created a professional builder market. This centralizes the most profitable part of the chain's operation.
- Top 5 builders control ~90% of Ethereum blocks.
- Builders require massive, centralized infrastructure (~$1B+ in capital for top-of-block bundles).
- This creates a single point of failure for censorship and chain integrity.
~90%
Builder Control
$1B+
Capital Required
02
The Proposer-Builder Separation (PBS) Trap
PBS was designed to democratize MEV but instead outsourced complexity to a centralized layer. Validators are now just commodity block proposers.
- Validators are incentivized to outsource to maximize rewards, ceding control.
- Builders execute complex, opaque auctions (~$500M+ annual MEV).
- The system fails without trusted relays, creating another centralization vector.
$500M+
Annual MEV
100%
Reliance on Relays
03
The Staking Pool Oligopoly
Capital requirements and slashing risks drive users to a handful of large staking providers, concentrating the validator set's voting power.
- Lido, Coinbase, Binance control >50% of staked ETH.
- This creates protocol-level governance risk and potential for cartel behavior.
- The economic design inherently favors large, centralized capital pools.
>50%
Stake Controlled
3
Dominant Entities
deep-dive
THE CENTRALIZATION VECTOR
The Anatomy of a Flawed Supply Chain
Proof-of-Stake consensus outsources block production to a small, centralized cartel, creating a systemic risk for the entire blockchain ecosystem.
Block production centralization is the foundational flaw. Validator sets in networks like Ethereum and Solana are dominated by a handful of entities like Lido, Coinbase, and Figment. This creates a single point of failure for transaction ordering and censorship.
The MEV supply chain exacerbates this flaw. Centralized block builders like Flashbots and bloXroute capture the most profitable transactions, creating a rent-seeking cartel. Validators simply outsource building to maximize profit, abdicating their core protocol duty.
This is not delegation, it's capture. Protocols like EigenLayer attempt to decentralize by pooling stake, but they reinforce the cartel by creating new, larger centralized points of staked capital. The economic incentive to centralize always wins.
Evidence: On Ethereum, the top three entities control over 50% of staked ETH. Over 90% of blocks are built by just five builders. This is a protocol-level oligopoly that defeats the purpose of decentralization.
PROOF-OF-STAKE BLOCK PRODUCTION
The Centralization Dashboard: By The Numbers
A quantitative breakdown of the centralization vectors in Ethereum's current PoS block production model, contrasting it with the ideal of a permissionless, credibly neutral base layer.
| Centralization Metric | Current Reality (Ethereum PoS) | Theoretical Ideal (Permissionless) | Critical Flaw? |
|---|---|---|---|
Top 3 Entities' Block Share (30d avg) | 58% | < 33% | |
Proposer-Builder Separation (PBS) Adoption |
| 0% (Integrated) | |
MEV-Boost Relay Market Share (Top 3) |
| N/A (No relays) | |
Validator Client Diversity (Prysm %) | 42% | < 33% | |
Cost to Censor 1 Block (Capital) | $2.1M (33% of stake) |
| |
Time to Decentralize Builder Market (Est.) | 2-3 years (Post-PBS) | Immediate (No PBS) | |
Node Operator Geographic Concentration (Top 3 Countries) | USA, Germany, Finland (65%) | < 50% |
counter-argument
THE TRADE-OFF
The Steelman: "But It's Efficient!"
Centralized block production optimizes for short-term throughput at the cost of long-term decentralization and security.
Efficiency is a distraction. The argument for centralized block production, as seen in Jito Labs on Solana or Flashbots on Ethereum, focuses on MEV extraction and latency. This creates a single point of failure for the network's liveness and censorship resistance.
Decentralization is security. A system where a handful of entities like Lido or Coinbase control block building is not a Proof-of-Stake network; it's a permissioned cartel with extra steps. The Nakamoto Coefficient plummets.
The validator-client split. Protocols like EigenLayer and restaking exacerbate this by creating systemic dependencies on a few node operators. This rehypothecation of trust increases correlated failure risk far beyond any efficiency gain.
Evidence: Post-Merge Ethereum shows the flaw. Over 60% of blocks follow the proposer-builder separation (PBS) model, with builders like Flashbots and BloXroute dominating. The network's censorship resistance now depends on the ethics of three companies.
risk-analysis
THE VALIDATOR MONOPOLY
The Slippery Slope: Risks of a Centralized Supply Chain
Delegated Proof-of-Stake (DPoS) and liquid staking derivatives (LSDs) have created a critical bottleneck: centralized block production.
01
The Lido Cartel Problem
A single entity controlling >30% of Ethereum's stake creates a systemic risk. This isn't just about slashing; it's about soft power over protocol upgrades, MEV extraction, and censorship resistance.
- Single Point of Failure: A bug or regulatory attack on the dominant staking pool jeopardizes chain liveness.
- Governance Capture: The largest staker holds disproportionate influence over Ethereum Improvement Proposals (EIPs).
- MEV Centralization: Block proposer selection becomes predictable, enabling Flashbots and searchers to form exclusive relationships.
>30%
Stake Share
1 Entity
Critical Risk
02
The Geographic & Infra Chokepoint
Validator nodes are not evenly distributed. They cluster in specific data centers (e.g., AWS us-east-1) and jurisdictions, creating tangible censorship vectors.
- Regulatory Attack Surface: A government can pressure a handful of cloud providers to censor transactions.
- Network Latency: Centralized hosting creates a ~100ms advantage for proposers in the same region, reinforcing centralization.
- Cost Barrier: Running a truly independent, resilient node is expensive, pushing solo stakers out.
~60%
Cloud Hosted
3 Jurisdictions
Primary Risk
03
Solution: Enshrined Proposer-Builder Separation (PBS)
The only credible mitigation is to hard-code competition into the protocol. PBS formally separates the right to choose a block from the act of building it.
- Breaks Monopolies: Decouples MEV-Boost relay/block builder dominance from validator stake share.
- Creates Markets: Builders (Flashbots, bloXroute) compete on execution quality, not just stake weight.
- Protocol-Level Enforcement: Unlike current optional PBS, enshrined PBS makes censorship economically irrational.
0
Stake Advantage
100%
Enforcement
04
Solution: Distributed Validator Technology (DVT)
DVT, like Obol SSV.network, uses multi-operator clusters to run a single validator. This eliminates single points of failure and decentralizes infrastructure.
- Fault Tolerance: A validator stays online even if 1 of 4 operators goes down.
- Geographic Distribution: Operators in a cluster can be spread globally, neutralizing jurisdictional risk.
- LSD 2.0: Enables the creation of decentralized staking pools that rival Lido in UX without the centralization.
4+
Operators
99.9%
Uptime
future-outlook
THE ARCHITECTURAL FLAW
The Path Forward: In-Protocol PBS and Beyond
Centralized block production in Proof-of-Stake creates a systemic risk that in-protocol Proposer-Builder Separation (PBS) must solve.
Centralization is a protocol flaw. The current PoS model bundles block proposing and building, creating a natural monopoly for the largest staking pools like Lido and Coinbase. This centralization vector undermines the network's censorship resistance and creates a single point of failure for MEV extraction.
In-protocol PBS separates roles. It enforces a market between proposers (validators) and specialized builders (e.g., Flashbots, bloXroute). This design eliminates the validator's ability to censor or front-run transactions directly, pushing competition to the builder layer.
Ethereum's enshrined PBS roadmap is the definitive solution. Proposals like mev-boost are a temporary crutch; the endgame is a protocol-level auction (e.g., a commit-reveal scheme) that bakes economic security and permissionless participation directly into the consensus layer.
The metric is builder diversity. A healthy PBS ecosystem requires multiple competing builders. The current reliance on a few centralized entities like Flashbots for >90% of blocks is the problem in-protocol PBS must solve.
takeaways
THE STAKING OLIGOPOLY
TL;DR: The Centralized Block Production Crisis
Proof-of-Stake's promise of decentralization is being undermined by a silent cartel of block producers, creating systemic risk and extractive economics.
01
The Problem: Lido's 32% Monopoly
The largest liquid staking provider controls a super-majority of validators, creating a single point of failure and governance capture risk.
- >30% of Ethereum stake concentrated in one entity.
- Governance attack vector: LDO token holders, not ETH stakers, control protocol upgrades.
- Economic abstraction: Staking rewards are siphoned into a secondary token (stETH) economy.
32%
Stake Share
1 Entity
Failure Point
02
The Problem: MEV Cartels & PBS
Proposer-Builder Separation (PBS) has institutionalized MEV extraction, creating a professional builder class that excludes retail validators.
- ~90% of blocks are built by a handful of specialized entities (e.g., Flashbots, bloXroute).
- Revenue centralization: Top builders capture the majority of $1B+ annual MEV.
- Technical barrier: Optimized block building requires custom hardware and data feeds, creating an insurmountable moat.
$1B+
Annual MEV
~90%
Blocks Controlled
03
The Solution: Distributed Validator Technology (DVT)
Splits validator keys across multiple nodes, requiring a threshold to sign, eliminating single points of failure.
- Fault tolerance: Network remains live even if some nodes go offline.
- Key security: No single operator holds the full signing key.
- Adoption path: Being integrated by Lido (Staking Router) and Obol, SSV Network.
n-of-m
Signature Scheme
0%
Single Point Failure
04
The Solution: SUAVE & Permissionless Builders
A shared mempool and block builder network that democratizes access to MEV by separating transaction privacy from execution.
- Levels the field: Any validator can access competitive block bundles.
- Breaks cartels: Decouples order flow from exclusive builder relationships.
- Architectural shift: Treats block building as a public good, not a private service.
Shared
Mempool
Permissionless
Access
05
The Solution: Enshrined Proposer-Boost
Protocol-level incentives that reward validators for including locally-sourced transactions, countering the economic pull of centralized builders.
- Direct subsidy: Rewards for including a minimum percentage of peer-to-peer (P2P) transactions.
- Preserves PBS benefits: Maintains efficiency while redistributing power.
- Economic re-alignment: Makes running a competitive, independent builder viable for smaller pools.
Protocol
Level Fix
P2P Boost
Incentive
06
The Reality: Regulatory Capture Risk
Centralized block production creates a clear attack surface for regulators, threatening the entire network's censorship-resistance.
- OFAC Compliance: Major builders already censor transactions, affecting >50% of post-merge blocks.
- KYC Staking: Regulators could target the few large entities (Coinbase, Kraken, Lido) to enforce identification.
- Existential threat: If block production is centralized, the network can be coerced.
>50%
Censored Blocks
3 Entities
Regulatory Target
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