Why Searcher-Builder Collusion Is the Systemic Risk Nobody Discusses

Proposer-Builder Separation (PBS) is a flawed market design. The theoretical auction for block space between builders like Flashbots SUAVE and Jito Labs assumes adversarial competition. In reality, the time-sensitive nature of MEV creates a prisoner's dilemma where cooperation is more profitable.

Searcher-builder collusion is the systemic risk. A searcher sharing their bundle's true value with a trusted builder eliminates the auction's price discovery. This creates a vertically integrated MEV supply chain, mirroring the miner-extractable value (MEV) problems PBS was meant to solve.

The evidence is in the mempool. The rise of private transaction pools and off-chain deal flow via platforms like EigenLayer and Espresso Systems proves the market is avoiding transparent auctions. The most valuable transactions never see a public bid.

Searcher-Builder Collusion is the dominant MEV supply chain model. Searchers like Flashbots and builders like Titan or rsync are often the same entity or operate under exclusive agreements. This eliminates the competitive auction for block space, centralizing control and obscuring price discovery.

Opaque Integration directly enables maximal extractable value (MEV). A vertically integrated entity sees the entire transaction flow, from intent to execution. It can front-run, back-run, and sandwich trades across venues like Uniswap and Curve without external competition, capturing value that should go to users or validators.

Transparent Markets Lose. Protocols like CowSwap that rely on fair, open competition for order flow are structurally disadvantaged. Their batch auctions and intent-based models cannot compete when the dominant builders simply exclude or exploit their transactions, a reality seen in the adoption struggles of SUAVE.

Evidence: Over 90% of Ethereum blocks are built by a cartel of five entities, with Flashbots' mev-boost relay dominating. This concentration proves the market is not transparent; it is a coordinated, fee-maximizing machine.

Searcher-builder collusion is inevitable. The economic incentive to share order flow and proprietary data for higher win rates will override any temporary neutrality. This creates a closed-loop MEV system that external players cannot audit or compete with.

The risk is censorship, not theft. A dominant, integrated entity like Flashbots' SUAVE or a private Jito Labs alliance does not need to steal value to exert control. It can algorithmically exclude transactions or entire protocols from blocks for strategic advantage.

Proof-of-stake exacerbates this. Validators outsource block building to these consolidated entities for maximal rewards. The result is proposer-builder separation (PBS) failing in practice, as the builder market consolidates into a few vertically-integrated cartels.

Evidence: Over 90% of Ethereum blocks are built by five entities, with Flashbots and bloXroute consistently dominant. The mempool is dead; private order flow to these builders is the new transaction supply chain.

Searcher-Builder collusion is inevitable because their incentives are perfectly aligned. Searchers pay builders to win blocks; builders profit by selecting the highest-paying bundles. This creates a closed-loop economy where value circulates internally, disincentivizing competition.

The feedback loop centralizes block production. Large builders like Flashbots and Titan gain an informational edge by seeing more private orderflow, which they use to build more profitable blocks, attracting more searchers, and further entrenching their dominance.

This is a systemic risk distinct from validator centralization. Even with decentralized validators, a cartel of builders controls transaction ordering and censorship. The recent Ethereum PBS fork by bloXroute and others demonstrates this fragility.

Evidence: Over 90% of Ethereum blocks are built by three entities. Builder market share directly correlates with captured MEV, creating a winner-take-most dynamic that standard consensus mechanisms cannot solve.

Collusion is the equilibrium state. The economic incentives for searchers and builders to merge are overwhelming. A unified entity captures the full MEV supply chain, from identification to finalization, maximizing extractable value. This is not a hypothetical; it's the logical endpoint of PBS (Proposer-Builder Separation) failing to enforce its separation.

This creates a new censorship vector. A dominant, integrated entity can selectively exclude transactions or entire applications. Unlike miner extractable value, this is a coordination attack that doesn't require public mempool data. Protocols like Flashbots SUAVE aim to combat this by decentralizing block building, but adoption is the bottleneck.

User execution guarantees evaporate. The promise of intent-based architectures (UniswapX, CowSwap) relies on a competitive builder market to fulfill user orders optimally. A colluded market returns us to a single, monopolistic counterparty, negating the core benefit. This risk makes cross-chain intents via LayerZero or Across structurally vulnerable.

Evidence: The mempool is already dead. Over 90% of Ethereum blocks are built by a handful of professional builders like Titan Builder and beaverbuild. Searchers like Jito Labs operate their own builders. The technical and financial barriers to entry solidify this oligopoly, making credible neutrality a pre-PBS relic.

Searcher-builder collusion centralizes MEV. Private order flow deals between entities like Jito and bloXroute create a two-tiered market, starving public mempools and making on-chain arbitrage a private club.

The primary risk is chain liveness. A dominant, collusive builder can censor transactions or halt block production by withholding bids, a threat more immediate than long-range 51% attacks.

Current solutions are palliative. PBS (Proposer-Builder Separation) and SUAVE only separate roles; they don't eliminate the economic incentive for builders and top searchers to form exclusive alliances.

Evidence: Flashbots' dominance post-PBS shows separation doesn't prevent centralization. A single builder capturing >80% of Ethereum blocks post-merge creates a critical single point of failure.