The Future of Proposer-Builder Separation: A Venture Perspective

PBS created a new oligopoly: a handful of builders like Flashbots and bloXroute dominate block production, capturing the majority of $1B+ annual MEV. This risks censorship and reduces chain neutrality.

• Solution: Fund decentralized builder networks like Jito Labs (Solana) and Shutter Network (Ethereum).
• Key Benefit: Distributes block building power and mitigates single points of failure.
• Key Benefit: Preserves credible neutrality through distributed key generation and threshold encryption.

Arbitrage and bridging opportunities exist across Ethereum, Solana, and L2s, but searchers face fragmented liquidity and execution risk. This leaves billions in value unextracted.

• Solution: Invest in intent-based protocols and shared sequencers like Across, UniswapX, and Astria.
• Key Benefit: Aggregates liquidity and routes orders optimally across domains via intents.
• Key Benefit: Shared sequencers enable atomic cross-rollup bundles, unlocking new MEV vectors.

Solo stakers and small pools cannot compete with sophisticated builders, missing out on MEV-boosted rewards. This disincentivizes decentralization.

• Solution: Back middleware that democratizes access, like EigenLayer restaking for decentralized builders or Rated.Network's analytics.
• Key Benefit: Enables stakers to capture a fair share of MEV rewards via restaking pools.
• Key Benefit: Provides transparency into builder performance, allowing for informed delegation.

PBS was meant to decentralize block production, but economic incentives favor centralization. A handful of dominant builders like Flashbots, bloXroute, and Titan already control >80% of blocks. This creates a new, unregulated layer of centralized power that can extract maximal value and censor transactions, undermining the core ethos of Ethereum.

• Risk: Builder cartels become the new, unregulated MEV extractors.
• Outcome: Network returns to a trusted, permissioned model for block production.

Ethereum's ultimate roadmap includes enshrined PBS at the protocol level. This existential threat renders today's venture-backed PBS infrastructure—relays, builder software, auction markets—redundant. If the core protocol subsumes their function, the multi-billion dollar market for external builders evaporates, leaving specialized firms with nowhere to go.

• Risk: Protocol-level solution destroys the market for external PBS.
• Timeline: A 5-10 year roadmap that devalues current investments.

The current PBS ecosystem is dangerously reliant on MEV-Boost as the dominant relay-builder marketplace. Its dominance creates systemic risk; a bug or cartelized relay operators can halt or manipulate a significant portion of Ethereum blocks. Alternatives like Tornado-SGX or SUAVE have failed to gain meaningful traction, leaving the network vulnerable.

• Risk: A single software failure can cripple block production.
• Reality: Lack of credible, decentralized alternatives after 2+ years.

Builders operate sophisticated, automated market-making systems that reorder and bundle transactions for profit. This looks functionally identical to a securities exchange or dark pool. Regulators (SEC, CFTC) will eventually classify top builders as financial market operators, subjecting them to capital, reporting, and compliance burdens that destroy their economic model and operational agility.

• Risk: Builders face existential regulatory classification.
• Impact: Compliance costs kill profitability and innovation.

PBS adds immense complexity to Ethereum's core development. Every protocol change—from EIP-4844 to Verkle Trees—must now be evaluated through the lens of builder economics and relay compatibility. This bogs down innovation, increases coordination overhead, and could lead to hard forks if builder interests diverge from the broader community, as seen in debates over crLists and MEV smoothing.

• Risk: PBS complexity becomes the primary bottleneck for Ethereum upgrades.
• Evidence: Slowed rollout of post-merge features due to PBS considerations.

Relays are a critical, trust-minimized piece of PBS infrastructure, but they have no sustainable revenue model. They cannot take cuts from builder payments without breaking trust assumptions. Projects like Flashbots Relay and Agnostic Relay run at a loss, relying on grants or altruism. This is not a venture-scale business; it's a public good funding problem that remains unsolved.

• Risk: Essential PBS component has no profitable business model.
• Result: Relays remain underfunded, centralized, and vulnerable.

PBS formalizes the extraction and redistribution of Maximum Extractable Value (MEV). This creates a multi-billion dollar market for specialized actors like Flashbots, Jito, and BloXroute.\n- Key Benefit 1: New revenue stream for validators via builder tips, boosting staking yields.\n- Key Benefit 2: Creates a liquid market for block space, improving capital efficiency.

Today's PBS (via MEV-Boost) is a trusted, off-protocol marketplace. The endgame is enshrining PBS into the core protocol (e.g., Ethereum's ePBS). This is a trillion-dollar design decision.\n- Key Benefit 1: Eliminates relay trust assumptions, reducing centralization and censorship vectors.\n- Key Benefit 2: Protocol-native PBS captures MEV revenue directly, funding public goods via EIP-1559 burn or treasury.

Without careful design, PBS creates builder monopolies. Entities with superior order flow (e.g., via integrations with Coinbase, Binance) and cross-domain MEV capabilities will dominate.\n- Key Benefit 1: Opportunity for builders specializing in privacy (RISC Zero) or cross-chain arbitrage.\n- Key Benefit 2: Drives innovation in SUAVE-like decentralized block building networks to combat centralization.

Rollups and app-chains (e.g., dYdX, Aevo) don't need to inherit Ethereum's PBS complexity. They can design bespoke MEV markets optimized for their application (e.g., intent-based auctions).\n- Key Benefit 1: Native order flow auctions (OFAs) can return MEV directly to users, a powerful growth lever.\n- Key Benefit 2: Enables novel fee markets, bypassing EIP-1559 for application-specific tokenomics.

PBS creates a legal moat. Builders sell blocks (data) to proposers, not transaction ordering services to users. This structurally separates the regulated activity (exchange/brokerage) from the consensus layer.\n- Key Benefit 1: Insulates core protocol development from financial regulations like MiCA.\n- Key Benefit 2: Attracts institutional capital (e.g., Fidelity, BlackRock) by clarifying legal liability.

The real MEV is cross-chain. Future PBS systems must natively support atomic execution across Ethereum, Solana, Cosmos, and Bitcoin via bridges like LayerZero and Wormhole.\n- Key Benefit 1: Unlocks $100B+ in latent cross-chain arbitrage and liquidity rebalancing value.\n- Key Benefit 2: Creates a new infrastructure layer for universal block builders, a defensible moat.