The Proposer-Pays Model, exemplified by Ethereum's PBS, excels at decentralizing builder power because it allows validators (proposers) to accept blocks from a competitive, permissionless market. This auction dynamic drives MEV extraction efficiency and fee revenue back to the consensus layer. For example, post-Merge Ethereum has seen over 90% of blocks built by specialized builders, with proposer rewards significantly boosted by this competition.
LABS
Comparisons
Proposer-Pays Model vs Builder-Pays Model
A technical and economic analysis of the two dominant MEV reward distribution frameworks in Proposer-Builder Separation, comparing validator incentives, builder competition, and protocol security trade-offs.
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introduction
THE ANALYSIS
Introduction: The Economic Core of Proposer-Builder Separation
A foundational comparison of the two dominant economic models that define incentives and risk allocation in modern block production.
The Builder-Pays Model, implemented by chains like Solana and Avalanche, takes a different approach by having the transaction sender pay fees directly to the block producer. This results in simpler fee economics and lower latency, as there is no secondary auction. The trade-off is that it consolidates block production and MEV capture within the validator set, potentially reducing the specialization and competition seen in proposer-pays ecosystems.
The key trade-off: If your priority is maximizing validator revenue, censorship resistance, and a robust MEV supply chain, choose the Proposer-Pays model. If you prioritize predictable, low fees for users and minimal protocol complexity, the Builder-Pays model is more suitable. The choice fundamentally dictates who bears the cost and who captures the value of block space.
tldr-summary
Proposer-Pays vs Builder-Pays
TL;DR: Core Differentiators at a Glance
Key architectural trade-offs for fee market design, summarized for decision-makers.
01
Proposer-Pays: Predictable User Experience
User pays fees directly: Transaction costs are known upfront and paid by the sender, similar to Ethereum's EIP-1559. This matters for dApp UX and wallet integrations where fee estimation is critical.
02
Proposer-Pays: Simpler Protocol Design
No MEV auction complexity: The chain's native validator (proposer) orders transactions and collects all fees/MEV. This matters for new L1s or app-chains seeking a straightforward, secure economic model without external builder dependencies.
03
Builder-Pays: Advanced Block Optimization
Specialized builders compete: Entities like Flashbots, bloXroute, and Titan optimize blocks for maximum value (MEV extraction, arbitrage). This matters for maximizing validator revenue and achieving theoretical max TPS through sophisticated ordering.
04
Builder-Pays: Decoupled Execution & Consensus
Separates block building from proposing: Enables a competitive marketplace (e.g., mev-boost, SUAVE) that can reduce centralization risks in Lido-dominated pools. This matters for Ethereium's ecosystem health and censorship resistance.
05
Proposer-Pays: Potential Centralization Risk
Validator monopoly on ordering: The same entity that proposes the block captures all MEV, which can lead to stake centralization as operators chase higher rewards. This is a key concern for long-term chain decentralization.
06
Builder-Pays: Complex User & Developer Experience
Unpredictable fee abstraction: Users may not pay gas, but builders extract value via MEV (e.g., front-running), creating hidden costs. This matters for DeFi traders and developers building MEV-sensitive applications who must use tools like Flashbots Protect.
HEAD-TO-HEAD COMPARISON
Feature Comparison: Proposer-Pays vs Builder-Pays
Direct comparison of transaction fee models for Ethereum and its Layer 2s, focusing on economic incentives and censorship resistance.
| Key Metric / Feature | Proposer-Pays Model | Builder-Pays Model |
|---|---|---|
Primary Fee Payer | Transaction Sender | Block Builder (via MEV) |
Censorship Resistance | ||
Base Fee (EIP-1559) Burn | Yes | Yes |
Priority Fee (Tip) Destination | Proposer (Validator) | Builder & Proposer |
MEV Extraction Transparency | Low (Off-chain) | High (On-chain via PBS) |
Dominant Protocol Example | Ethereum Pre-Merge | Ethereum Post-Merge (with PBS) |
Validator Revenue Predictability | High | Variable (Auction-based) |
pros-cons-a
Two Architectures for MEV & Fee Distribution
Proposer-Pays Model: Advantages and Trade-offs
A critical comparison of the Proposer-Pays (e.g., Solana) and Builder-Pays (e.g., Ethereum) models, detailing their impact on user experience, validator incentives, and network security.
01
Proposer-Pays: User Experience
Direct fee payment: Users pay transaction fees directly to the network's block proposer/validator. This creates a simpler, more predictable cost structure for end-users, as seen on Solana where fees are a flat, known cost. This matters for high-frequency trading (HFT) bots and consumer dApps requiring predictable operational costs.
02
Proposer-Pays: Validator Incentives
Aligned base rewards: Validator revenue is directly tied to processed transactions, encouraging high throughput and network liveness. However, it provides minimal native mechanism for MEV redistribution. This matters for networks prioritizing raw performance and simplicity over complex in-protocol MEV management.
03
Builder-Pays: User Experience
Indirect, competitive subsidization: Users may pay minimal or even negative fees as builders (e.g., Flashbots, bloXroute) compete by including transactions and paying the proposer. This can lead to a complex and opaque fee market (EIP-1559 base fee + priority fee). This matters for protocols where maximal extractable value (MEV) is significant and can be recycled to users.
04
Builder-Pays: Ecosystem & Security
Formalized MEV supply chain: Separates block building from proposing, enabling sophisticated orderflow auctions (OFAs) and MEV smoothing via protocols like CowSwap and MEV-Share. This creates a more complex but potentially fairer system. This matters for DeFi-heavy ecosystems like Ethereum and Arbitrum where MEV is a primary security and economic concern.
pros-cons-b
PROPOSER-PAYS VS BUILDER-PAYS
Builder-Pays Model: Advantages and Trade-offs
A technical breakdown of fee market designs, comparing the traditional Proposer-Pays model (e.g., Ethereum pre-PBS) with the modern Builder-Pays model (e.g., MEV-Boost, Solana, Sui).
01
Proposer-Pays: Predictable User Experience
Direct fee auction: Users bid for block space directly with transaction fees (e.g., Ethereum's base fee + priority fee). This creates a predictable cost model for end-users and dApps like Uniswap or Aave.
Key Trade-off: Leads to MEV extraction by validators, as they can reorder or censor transactions to capture value, creating negative externalities for the network.
02
Proposer-Pays: Simpler Protocol Design
Minimal protocol complexity: The consensus layer (e.g., Ethereum's beacon chain) does not need to manage an off-chain auction marketplace. Validation logic remains focused on attestation and block proposal.
Key Trade-off: Inefficient block production. The validator proposing the block may not be the most skilled at maximizing block value, leading to suboptimal network revenue and user experience.
03
Builder-Pays: Maximized Network Revenue
Specialized block building: Professional builders (e.g., Flashbots, bloXroute) compete in a sealed-bid auction (MEV-Boost) to create the most valuable blocks. This increases validator rewards by 50-100%+ compared to naive building.
Key Trade-off: Introduces centralization risks in the builder layer and reliance on relays (e.g., Agnostic, Ultra Sound) for censorship resistance.
04
Builder-Pays: Improved User & dApp UX
Fee subsidization: Builders can pay for user transactions to win auctions, enabling gasless transactions or sponsored gas models. This is critical for mainstream adoption of consumer dApps.
Key Trade-off: Creates a two-tiered market. Sophisticated users/MEV bots benefit from back-running opportunities, while regular users may face more opaque fee dynamics.
05
Builder-Pays: MEV Democratization & Management
Explicit MEV marketplace: MEV flows become a visible, auctioned commodity rather than a hidden tax. This enables MEV smoothing and MEV redistribution mechanisms (e.g., to stakers or public goods via protocols like CowSwap).
Key Trade-off: Requires complex cryptoeconomic security for the builder-relay-proposer pipeline. Failures in this system can lead to chain re-orgs or liveness issues.
06
Builder-Pays: Protocol-Level Integration (Future)
Enshrined Proposer-Builder Separation (PBS): Future upgrades (e.g., Ethereum's Dankrad) aim to move the auction on-chain, mitigating relay trust assumptions. Native models like Solana's Jito and Sui's Narwhal-Bullshark are designed with this separation in mind.
Key Trade-off: Significant protocol complexity and upgrade risk. Getting the in-protocol economic incentives right is a major R&D challenge with long timelines.
CHOOSE YOUR PRIORITY
Decision Framework: When to Choose Which Model
Proposer-Pays Model for Architects
Verdict: Choose for predictable, protocol-controlled economics and censorship resistance. Strengths: The protocol (e.g., Ethereum's base fee) directly sets user costs, creating a stable, predictable fee market. This model is inherently more resistant to censorship by centralized builders, as proposers are incentivized to include the highest-fee transactions regardless of source. It's the standard for L1s like Ethereum, Avalanche, and Arbitrum, offering a battle-tested, neutral foundation. Trade-offs: You sacrifice some MEV revenue that could subsidize staking yields. The protocol must be robust enough to handle fee volatility without external subsidies.
Builder-Pays Model for Architects
Verdict: Choose for maximizing staker yields and enabling advanced transaction ordering services. Strengths: Builders (e.g., via Flashbots' MEV-Boost) pay proposers for block space, directly boosting validator rewards. This enables sophisticated features like transaction bundling and frontrunning protection (e.g., CowSwap's CoW Protocol). It's ideal for chains where maximizing validator participation is critical. Trade-offs: Introduces centralization risks around builder dominance (e.g., beaver.build, Titan). Protocol architects must design robust relay networks and PBS (Proposer-Builder Separation) implementations to mitigate these risks.
verdict
THE ANALYSIS
Verdict and Strategic Recommendation
A final assessment of the proposer-pays and builder-pays models, providing a clear decision framework based on protocol priorities.
The Proposer-Pays Model, exemplified by Ethereum's base layer, excels at decentralization and censorship resistance because it empowers a large, permissionless set of validators to control transaction ordering. This model ensures no single entity can dictate block content, a critical feature for high-value DeFi protocols like Uniswap and Aave, which secure over $50B in TVL. However, it leads to inefficient block space utilization as proposers lack the incentive to fill blocks optimally, often resulting in lower aggregate fees and MEV extraction by searchers.
The Builder-Pays Model, central to the PBS (Proposer-Builder Separation) ecosystem via relays like Flashbots and builders like bloXroute, takes a different approach by specializing roles for maximal extractable value (MEV). Builders compete to create the most profitable blocks, paying proposers for the right to include them. This results in superior economic efficiency and higher validator rewards, but introduces centralization risks around a handful of dominant builders who control a majority of block production, as seen in periods where the top three builders produced over 80% of Ethereum blocks post-Merge.
The key trade-off: If your protocol's non-negotiable priority is maximal decentralization and credibly neutral transaction ordering, the traditional proposer-pays model provides a more robust foundation. If you are building a high-throughput, fee-sensitive dApp and prioritize minimizing user costs and maximizing chain revenue, the builder-pays model (or a hybrid system) is the superior choice. The future likely lies in hybrid implementations, such as Ethereum's enshrined PBS (ePBS), aiming to preserve decentralization while capturing efficiency gains.
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