MEV is infrastructure policy. The design of the block builder marketplace and PBS determines transaction ordering, censorship resistance, and validator economics, making it the most consequential layer of protocol design.
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The Future of Ethereum is Being Decided in MEV Committee Rooms
An analysis of how the existential need to manage MEV's systemic risks—not just scalability—is the primary driver behind Ethereum's most critical protocol upgrades, from PBS to single-slot finality.
introduction
THE POWER SHIFT
Introduction
The technical roadmap for Ethereum is no longer set by core developers alone, but by the private negotiations of MEV stakeholders.
The committee is the new core dev. Decisions on in-protocol PBS, MEV smoothing, and crLists are made by a closed group of Flashbots, bloXroute, and major validators, not the open Ethereum Improvement Proposal (EIP) process.
This centralizes protocol power. The entities that control block building—Jito Labs on Solana, Flashbots on Ethereum—dictate the user experience, economic fairness, and security assumptions for the entire chain.
Evidence: Over 90% of Ethereum blocks are built by a handful of builders, and the PBS roadmap is being implemented via private working groups before public specification.
key-insights
THE POWER SHIFT
Executive Summary
The technical roadmap for Ethereum's next era is no longer set by core devs alone, but by a new class of infrastructure builders and extractors who control the flow of value.
01
The Problem: Unchecked MEV is a Systemic Tax
The $1B+ annual MEV market is a direct extraction from users, creating toxic arbitrage and frontrunning that degrades network performance. It's a hidden tax that distorts incentives for builders, proposers, and end-users, making the chain less predictable and fair.
$1B+
Annual Extract
>50%
Arb Bot Traffic
02
The Solution: PBS and SUAVE
Proposer-Builder Separation (PBS) and Flashbots' SUAVE chain are the architectural responses. PBS decouples block building from proposing, creating a competitive market. SUAVE aims to be a neutral, decentralized mempool and block builder, moving MEV logic off-chain to democratize access and reduce negative externalities.
~90%
PBS Adoption
1 Chain
Decoupled Logic
03
The New Kingmakers: Block Builders
Entities like Flashbots, bloXroute, and builder0x69 now decide transaction ordering. They run sophisticated algorithms to maximize block value, wielding immense power. This centralizes a critical function, creating a new point of failure and censorship risk that must be managed.
~80%
Top 3 Builders
~500ms
Auction Window
04
The Endgame: Intents and Encrypted Mempools
The ultimate user-centric solution shifts from transactions to intents (as seen in UniswapX and CowSwap). Users specify what they want, not how. Coupled with encrypted mempools (e.g., Shutter Network), this architecture neutralizes frontrunning and moves complexity to specialized solvers.
0%
Frontrun Risk
Solver Market
New Layer
05
The Risk: Regulatory Capture of the Supply Chain
MEV supply chain participants (builders, relays, proposers) are vulnerable points for OFAC compliance demands. The Tornado Cash sanctions precedent shows how regulatory pressure can force censorship at the infrastructure layer, threatening Ethereum's credibly neutral base layer.
>50%
OFAC Compliant Blocks
Critical
Decentralization Risk
06
The Opportunity: MEV as a Protocol Resource
Forward-thinking protocols like EigenLayer and Osmosis are exploring MEV capture and redistribution. By internalizing and socializing MEV, protocols can fund their own security (via restaking) or return value directly to users, turning a parasitic extractor into a sustainable protocol resource.
New Yield
For Stakers
Protocol-Owned
Value Flow
thesis-statement
THE ARCHITECTURAL FORCE
The Core Thesis: MEV Drives Protocol Design
Maximum Extractable Value is the primary force shaping Ethereum's technical roadmap and protocol economics.
MEV determines infrastructure winners. The race to capture and redistribute MEV dictates which L2s, sequencers, and bridges gain adoption. Optimism's Superchain and Arbitrum BOLD are governance frameworks for managing sequencer MEV, not just scaling.
Protocols are MEV-aware by design. UniswapX and CowSwap use intent-based architectures to bypass frontrunning. This shifts the MEV supply chain from searchers to solvers, changing the fundamental transaction flow.
Consensus is now an MEV market. Proposer-Builder Separation (PBS) and mev-boost turned block production into a real-time auction. The next battle is for cross-domain MEV between L2s via shared sequencers like Espresso or AltLayer.
Evidence: Over 600k ETH has been extracted as MEV since the Merge, creating a multi-billion dollar incentive that every new protocol must address or exploit.
market-context
THE POWER SHIFT
The Current Battlefield: PBS and the Rise of Builder Cartels
Proposer-Builder Separation (PBS) has formalized MEV extraction, centralizing block production power in a handful of dominant builders.
PBS formalizes MEV extraction by separating the role of block proposer from block builder. This creates a specialized market where builders like Flashbots, bloXroute, and beaverbuild compete to construct the most profitable blocks for validators to propose.
Builder market share is hyper-concentrated. The top three builders consistently produce over 80% of Ethereum blocks. This creates a builder cartel with immense power to censor transactions, front-run users, and dictate network latency.
The MEV-Boost auction is the battleground. Builders bid for the right to have their block proposed, paying validators via priority fees. This auction mechanism, while efficient, incentivizes vertical integration between builders, searchers, and private order flows.
Evidence: Flashbots' mev-boost relays control over 90% of post-merge block space. This centralization point creates a single point of failure and censorship, contradicting Ethereum's decentralized ethos.
PROPOSAL COMPARISON
MEV-Driven Protocol Upgrades: The Defense Matrix
Comparing core proposals for mitigating negative externalities of MEV within the Ethereum protocol.
| Protocol Feature / Metric | Enshrined PBS (PBS-E) | MEV-Burn / MEV-Smoothing | MEV-Aware Execution (ePBS) |
|---|---|---|---|
Primary Goal | Separate block building from proposing to democratize access | Redistribute MEV revenue from builders to the protocol/validators | Enable proposers to build competitive blocks without specialized hardware |
Builder-Power Centralization Risk | High (relies on competitive builder market) | Medium (incentivizes many builders via smoothing) | Low (proposers are the builders) |
Protocol Revenue Increase | Low (fees go to builders, not treasury) | High (directs a portion of MEV to burn/redistribution) | Medium (proposer gets full MEV, protocol gets base fee) |
Latency Tolerance for Proposer | < 1 second (requires fast relay network) | ~2-4 seconds (smoothing window) | < 500ms (local block construction) |
Requires Out-of-Band Trusted Relay | |||
Compatibility with SUAVE / Flashbots | High (designed for it) | Medium (can work alongside) | Low (competes with it) |
Status in Ethereum Roadmap | Post-Dencun, active R&D | Research phase, EIP-7266 proposed | Conceptual, long-term research |
protocol-spotlight
THE PROTOCOL POLITICS OF MEV
Committee Room Architects: Who's Building the Defenses?
MEV is no longer just a technical exploit; it's a governance battleground where protocol designers, builders, and validators negotiate the future of Ethereum's economic security.
01
Flashbots: The Original Committee Room
Pioneered the sealed-bid auction model with MEV-Boost, creating a formal market for block space. Their SUAVE initiative aims to decentralize this market entirely.
- Key Benefit: Separated block proposal from building, democratizing access.
- Key Benefit: ~90% of Ethereum blocks are built via MEV-Boost, setting the de facto standard.
90%+
Block Share
SUAVE
Next Phase
02
The PBS Mandate: Enshrining Neutrality in Protocol
Proposer-Builder Separation (PBS) is the endgame: hardcoding MEV market rules into the Ethereum protocol itself via ePBS. This removes trust from external relayers.
- Key Benefit: Eliminates relay centralization risk, the current critical failure point.
- Key Benefit: Guarantees credible neutrality; the protocol, not a corporation, sets the rules.
Protocol
Layer Enforced
0 Relays
Trust Assumption
03
MEV-Smoothing & MEV-Burn: Redistributing the Rent
Two competing philosophies for handling extracted value. MEV-Smoothing (proposed by Obol, ssv.network) redistributes MEV evenly to all validators. MEV-Burn (EIP-1559 style) destroys it, making ETH more deflationary.
- Key Benefit (Smoothing): Preserves staking APR and validator decentralization.
- Key Benefit (Burn): Increases ETH scarcity and network security budget.
Two Schools
Of Thought
Stake vs Token
Value Capture
04
The Builder Cartel Problem: Lido, Coinbase, and the 33% Threshold
Vertical integration of staking pools (like Lido) with block builders creates centralized points of failure. Controlling >33% of builder market could enable censorship or chain re-orgs.
- Key Benefit of Scrutiny: Forces transparency dashboards (e.g., Rated.network).
- Key Benefit: Drives innovation in decentralized builder networks as a counter-force.
>33%
Risk Threshold
Vertical Power
Centralization
05
Cross-Chain MEV: The Next Frontier for Arbitrageurs
MEV is no longer chain-specific. Protocols like LayerZero and Axelar enable cross-chain atomic arbitrage, creating a global MEV market. This shifts committee negotiations to inter-protocol governance.
- Key Benefit: Unlocks billions in latent value across fragmented liquidity.
- Key Benefit: Creates demand for cross-chain PBS and shared security models.
Multi-Chain
Arbitrage
New Attack
Vectors
06
The Privacy Prescription: Encrypted Mempools as a Public Good
Front-running prevention at the network layer. Projects like Shutter Network (using threshold encryption) and EigenLayer-based services aim to create a hidden mempool, neutralizing many MEV strategies.
- Key Benefit: Protects users from sandwich attacks and generalized front-running.
- Key Benefit: Shifts MEV from predatory to arbitrage-only, a net economic benefit.
Threshold
Encryption
Predatory -> Arb
MEV Shift
deep-dive
THE ARCHITECTURAL SHIFT
The Endgame: Single-Slot Finality as the Ultimate MEV Containment
Ethereum's move to single-slot finality is a structural redesign to neutralize the economic advantage of block-building cartels.
Single-slot finality (SSF) collapses the MEV supply chain. It eliminates the multi-block reorg games that let builders like Flashbots and bloXroute extract value from future blocks, forcing all competition into a single auction.
The endgame is a commoditized block builder. With no time advantage, builders compete purely on execution efficiency, not temporal positioning. This mirrors the evolution from specialized ASICs to generalized hardware in other industries.
Proposer-Builder Separation (PBS) becomes a real-time auction. SSF turns PBS from a multi-round negotiation into a one-shot, sealed-bid game. The winning builder's block is final, destroying the reorg risk that currently justifies high builder margins.
Evidence: The Ethereum Foundation's research on SSF explicitly targets a 12-second slot time, which is the physical limit for global network propagation. This timeline makes multi-block MEV strategies mathematically impossible.
counter-argument
THE MISPLACED FAITH
The Optimist's Rebuttal (And Why It's Wrong)
The belief that MEV can be 'solved' by committees ignores the fundamental economic incentives that created the problem.
Commitments are non-binding. The MEV-Boost relay list and the Builder API are voluntary. A validator's fiduciary duty to maximize yield will always override any committee pledge when a sufficiently large, private bundle arrives.
Institutional capture is inevitable. The PBS roadmap centralizes block building into a few professional entities like Flashbots and bloXroute. Committees will be dominated by these same players, formalizing their influence rather than mitigating it.
The problem is economic, not social. MEV stems from latency advantages and private order flow. Committees cannot solve this; only credibly neutral, protocol-level solutions like encrypted mempools or threshold encryption can. The current path outsources core protocol design to a cartel.
risk-analysis
THE CENTRALIZATION TRAP
What Could Go Wrong? The Bear Case on MEV Mitigation
The push to mitigate MEV is creating new, more subtle forms of centralization that could undermine Ethereum's core value proposition.
01
The Builder Cartel Problem
PBS and MEV-Boost outsourced block production to a few dominant builders like Flashbots and Titan. This creates a cartel that can censor transactions, extract maximum value, and dictate protocol upgrades.\n- >90% of blocks are built by the top 3 builders.\n- Regulatory capture risk as a few entities control the transaction pipeline.
>90%
Top 3 Builders
1
Censorship Vector
02
Enshrined PBS: Protocol Bloat & Capture
Proposals to enshrine Proposer-Builder Separation (PBS) directly into the Ethereum protocol risk permanent, unchangeable centralization. It locks in a specific builder market structure, stifles innovation from competitors like SUAVE, and makes the core protocol more complex and fragile.\n- Irreversible design if enshrined incorrectly.\n- Increased attack surface and client implementation complexity.
Permanent
Lock-in Risk
High
Complexity Cost
03
The Privacy vs. Fairness Trade-off
Privacy solutions like encrypted mempools (e.g., Shutter Network) or threshold decryption can prevent frontrunning but create new problems. They introduce latency, require trusted setups or committees, and can enable collusion among a small set of actors who hold decryption keys. The cure may be worse than the disease.\n- ~12s+ added latency per block.\n- Trusted committee becomes a single point of failure.
~12s+
Latency Added
New SPOF
Trusted Setup
04
Killing the Golden Goose
Aggressive MEV mitigation (e.g., first-price auctions, MEV smoothing) destroys the economic incentives that secure the network. Validator revenue plummets, reducing staking yields and making the chain less secure against attacks. Projects like EigenLayer attempt to re-monetize security, creating a circular dependency.\n- -30%+ potential drop in validator yield.\n- Security becomes subsidized, not organic.
-30%+
Yield Impact
Subsidy Risk
Security Model
05
The Intents Centralization Endgame
The shift to intent-based architectures (e.g., UniswapX, CowSwap) moves complexity and liquidity off-chain to centralized solvers. Users trade sovereignty for convenience, creating a landscape dominated by a few solver networks like Across and Anoma. The chain becomes a settlement layer for pre-negotiated deals.\n- Solver cartels control routing and pricing.\n- Off-chain black box for execution logic.
Solver Cartels
New Middlemen
Off-Chain
Execution Opaque
06
Regulatory Weaponization
By formalizing and centralizing MEV flows, mitigation efforts make the entire ecosystem an easier target for regulation. Entities like Flashbots or dominant builders can be compelled by governments to implement transaction blacklists (OFAC compliance). The committee-driven governance of these systems is a direct point of legal attack.\n- OFAC compliance already at >50% of blocks.\n- Legal liability shifts to protocol developers.
>50%
OFAC Blocks
High
Legal Surface
investment-thesis
THE INCENTIVE MISMATCH
The VC Lens: Capital Flows Follow Protocol Pain Points
Venture capital is aggressively funding solutions that realign incentives between users, builders, and validators, moving beyond simple transaction ordering.
MEV is a tax on user experience and protocol security, creating a multi-billion dollar incentive mismatch. This misalignment is the primary pain point attracting venture capital into infrastructure.
Capital targets coordination layers, not just extraction. Investments in SUAVE, Flashbots Protect, and shared sequencer projects like Espresso and Astria aim to democratize and formalize MEV flows.
The committee room is where protocol sovereignty gets priced. Proposals like PBS (Proposer-Builder Separation) and MEV-Boost are not just technical specs; they are economic treaties deciding who profits from block space.
Evidence: Flashbots' dominance (>90% of Ethereum blocks) proves the market for neutral infrastructure. Venture rounds for Rome Protocol and Revert show capital betting on intent-based abstraction as the next frontier.
takeaways
THE MEV POWER SHIFT
TL;DR for Builders and Investors
The battle for Ethereum's future is not in the protocol, but in the private channels where builders, searchers, and validators negotiate MEV. Here's where to place your bets.
01
The Problem: MEV is a $1B+ Tax on Users
Front-running and sandwich attacks extract value directly from retail wallets. This creates a toxic UX and centralizes block production power.
- Result: ~$1.3B extracted from users in 2023.
- Risk: Builders with exclusive order flow (OF) create validator cartels.
$1B+
Annual Extract
>80%
Blocks Centralized
02
The Solution: SUAVE is the Endgame
Flashbots' SUAVE aims to decentralize the MEV supply chain by creating a separate mempool and blockchain for preference expression and execution.
- Vision: A universal, cross-chain block builder.
- Bet: If successful, it commoditizes builders and returns value to users.
Cross-Chain
Scope
TBD
Launch ETA
03
The Interim Play: Intents & Private Mempools
Until SUAVE, applications are bypassing the public mempool entirely. This is the current battleground.
- Entities: UniswapX, CowSwap, 1inch Fusion.
- Mechanism: Users submit intents; solvers compete off-chain, submitting optimal bundles.
~$10B+
Intent Volume
0
Front-run Risk
04
The Builder's Dilemma: OF is King
Block builders compete on their ability to source and optimize order flow. Exclusive deals with large dApps (e.g., Uniswap via UniswapX) are the ultimate moat.
- Reality: Builder market is winner-take-most.
- Action: Invest in or partner with applications controlling significant OF.
Oligopoly
Market Structure
Exclusive
Key Deals
05
The Validator's Choice: Maximize or Regulate?
Validators choose the highest-paying block. Proposer-Builder Separation (PBS) outsources complexity but creates reliance. Restaking pools like EigenLayer could enforce MEV rules.
- Power: Validators can blacklist malicious builders.
- Future: MEV smoothing or redistribution via protocols like MEV-Share.
+20%
APY from MEV
Regulatory
New Role
06
The Investor's Map: Follow the Value Capture
Value accrues to entities that control order flow, optimize execution, or provide critical infrastructure. Avoid middlemen facing commoditization.
- Bullish: Intent-based dApps, exclusive builders, restaking infra.
- Bearish: Generic public RPCs, simple block builders without OF.
Application
Layer Wins
Infra
Commoditizes
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