The Future of Block Building: Ethical Auctions and Credible Commitments

Proposer-Builder Separation (PBS) outsources block construction to specialized builders, but this creates a centralizing force. The highest-bidding builder wins, leading to cartel-like behavior and censorship risks. The proposer is a passive auctioneer with no stake in the block's long-term value.

• Centralization Pressure: Top 3 builders often control >70% of blocks.
• Censorship Vector: Builders can exclude transactions compliantly.
• Value Leakage: MEV profits are extracted, not shared with the protocol.

Builders post cryptoeconomic bonds (stake) that are slashed for violating predefined rules. This transforms builders from rent-seekers into stakeholders accountable for liveness, censorship-resistance, and fair ordering.

• Enforceable SLAs: Stake backs promises on inclusion lists or finality.
• Protocol Alignment: Slashed funds can be redirected to the treasury or stakers.
• Permissionless Entry: Bonding enables trust-minimized participation, challenging cartels.

Builders operate as black boxes. Proposers and users cannot verify if transaction ordering follows a fair policy (e.g., time, fee priority) or is manipulated for adversarial MEV. This lack of transparency makes trust assumptions and enables time-bandit attacks.

• Unverifiable Fairness: No proof that the "best" block was built ethically.
• Time-Bandit Risk: Builders can reorg chains if they later find more profitable MEV.
• User Distrust: DApps cannot guarantee execution predictability.

Define and cryptographically prove that a block was built according to a public ordering rule. Combine with encrypted mempools (e.g., Shutter Network) to hide transaction content until inclusion, neutralizing frontrunning.

• Provable Fairness: Zero-knowledge proofs or commitments attest to rule compliance.
• MEV Resistance: Encrypted bids prevent sniping and predatory arbitrage.
• Builder Competition: Shifts competition from information asymmetry to execution efficiency.

The current first-price sealed-bid auction for block space is inefficient and unstable. Builders must overbid to win, leading to volatile proposer payouts and network congestion from bid spam. It's a winner-takes-all model that discards the work of losing builders.

• Bid Waste: >90% of builder compute is discarded with each lost auction.
• Revenue Volatility: Proposer income is unpredictable, harming validator economics.
• Latency Overheads: Multiple full-block simulations clog network resources.

Implement MEV-sharing protocols that allow users to capture some extracted value and multi-round or Vickrey auctions to reduce bid volatility. Cross-domain block building (e.g., across L2s) aggregates liquidity for more efficient, stable auctions.

• User Rebates: Protocols like MEV-Share return a portion of MEV to users.
• Stable Proposer Revenue: MEV-smoothing pools distribute rewards evenly.
• Cross-Chain Efficiency: Builders like Across and LayerZero create composite value across rollups.

Without credible commitments, builders and searchers naturally form exclusive, off-chain deals. This recreates the centralized, opaque cartels that auctions aim to dismantle.\n- Off-Chain Payouts bypass auction rules, creating side-channel MEV.\n- Builder-Searcher Fusion leads to vertical integration, killing competition.\n- Result: The auction becomes a facade for a private marketplace.

Ethical auctions often rely on external price oracles (e.g., for cross-domain settlement). A malicious builder can manipulate this oracle within their own block to steal value or censor transactions.\n- In-Block Arbitrage: Front-run the oracle update you control.\n- Breaks Commit-Reveal: Invalidates the cryptographic guarantee if the commit depends on a corrupted state.\n- Mitigation Requires: Delay mechanisms or decentralized oracle networks like Chainlink.

The only credible commitment is one enforced by the protocol itself. Proposer-Builder Separation (PBS) must be enshrined in the consensus layer with slashing conditions for deviation.\n- Cryptoeconomic Security: Builders post bond; malicious behavior leads to slashable events.\n- Forces On-Chain Flow: All bids and payments are transparent and contestable.\n- Ethereum's Endgame: The core roadmap for ePBS is the definitive answer to off-chain collusion.

Even a perfect on-chain auction favors builders with the lowest latency to the proposer, recreating geographic centralization. The fastest network wins, not the most ethical.\n- Advantage to Colocation: Builders cluster near validators in Ashburn, VA.\n- Hardware Wars: Leads to ASIC/FPGA escalation for bid generation.\n- Result: Auction efficiency gains are captured by infra spend, not users.

To neutralize latency advantages, use a two-phase commit-reveal auction with a forced delay. Builders commit to a hashed bid, then reveal later, eliminating last-second snipping.\n- Levels the Field: Geographic proximity becomes irrelevant.\n- Enables Complex Bundles: Builders have ~1-12 seconds to compute optimal bundles.\n- Trade-off: Introduces block time latency, reducing chain responsiveness.

If builders can bid in any token (economic abstraction), it creates systemic risk. A builder could bid with a volatile or worthless token, winning the auction but failing to pay.\n- Settlement Risk: Proposer receives a crashing asset.\n- Protocol Capture: A dominant DEX token could become the de facto bribe currency.\n- Undermines Credibility: The auction's revenue guarantee becomes speculative.

Today's dominant PBS model outsources block building to a few centralized builders like Flashbots, creating a ~$1B+ annual hidden tax. The searcher-builder-proposer pipeline is a dark forest where users get rekt by sandwich attacks and arbitrage bots, with no visibility into the final auction.

• Centralized Censorship Risk: Builders can exclude transactions.
• Value Leakage: Proposer gets a cut, but the builder captures most complex MEV.
• Inefficient Markets: Bribes are private, not credibly committed.

Move the auction on-chain with cryptographic commitments. Builders like EigenLayer and Espresso are pioneering systems where the winning bid and block are cryptographically committed before reveal, making the auction fair and verifiable.

• Provably Fair Selection: Highest bidder wins, proven on-chain.
• Reduced Trust: No need to trust builder-proposer backroom deals.
• Composability: Auction outcomes can be inputs to other DeFi protocols.

The endgame isn't better block auctions—it's abstracting them away. UniswapX, CowSwap, and Across use intents: users declare desired outcomes ("swap X for Y"), and a network of solvers competes to fulfill them optimally off-chain.

• User Sovereignty: Express what you want, not how to do it.
• Efficiency Frontier: Solvers find cross-domain liquidity, reducing costs.
• MEV Resistance: Batch settlements and privacy pools neutralize frontrunning.

The new KPI isn't just TPS—it's credible latency bounds. Protocols like SUAVE and Astria are creating decentralized block-building markets that guarantee transaction inclusion within a specific timeframe, turning latency into a tradable commodity.

• Predictable UX: Users know their tx will land in the next N blocks.
• Market for Speed: Pay a premium for urgent settlement, save for slow.
• Builder Competition: Drives innovation in optimization and network topology.