Nakamoto Coefficient is obsolete because it measures static stake distribution. It ignores the dynamic, profit-driven cartelization of block production driven by Maximal Extractable Value (MEV). Validators with superior MEV strategies out-earn and out-grow passive ones.
mev-the-hidden-tax-of-crypto
Blog
Why MEV Will Force a Re-evaluation of Proof-of-Stake's Security Assumptions
The Nakamoto Coefficient is a naive metric. This analysis argues that MEV's economic gravity creates hidden centralization vectors, demanding new frameworks to measure true network resilience in Proof-of-Stake.
introduction
THE MEV REALITY
The Nakamoto Coefficient is a Lie
Traditional decentralization metrics fail to account for the centralizing gravitational pull of MEV, which will fracture Proof-of-Stake security.
MEV creates economic centralization. Entities like Flashbots and bloXroute operate private relay networks that prioritize high-MEV transactions for the largest validators. This creates a feedback loop where the rich get richer, concentrating stake.
Proof-of-Stake security assumes honest majority. A MEV cartel controlling 34% of stake is economically incentivized to censor or reorder transactions for profit, long before a 51% attack is rational. The security threshold is lower than models predict.
Evidence: On Ethereum post-merge, over 90% of blocks are built by MEV-Boost relays. The top three relay operators consistently control over 60% of relayed blocks, creating a centralized point of failure and censorship.
key-trends
SECURITY RE-ASSESSMENT
The MEV Centralization Flywheel
Proof-of-Stake's security model is being actively undermined by the economic gravity of MEV extraction, creating systemic risks.
01
The Staking Pool Oligopoly
Top-tier MEV rewards are only accessible to the largest, most sophisticated validators with custom software and off-chain infrastructure. This creates a winner-take-most dynamic where Lido, Coinbase, and Binance capture disproportionate rewards, accelerating stake centralization.\n- >33% of Ethereum stake controlled by top 3 entities\n- MEV-Boost relays and builders are already highly centralized
>33%
Stake Control
~90%
MEV-Boost Blocks
02
The Liveness-Security Tradeoff
The proposer-builder separation (PBS) model, designed to mitigate MEV centralization, creates a new attack vector. A malicious block builder coalition could censor transactions or threaten chain liveness by withholding blocks, exploiting the economic dependency of honest validators. This challenges the "1/3 honest" assumption for liveness.\n- PBS shifts power from validators to builders\n- Enshrined PBS is a multi-year roadmap item
1/3
Assumption Broken
$B+
Builder Cartel Value
03
The Re-staking Security Illusion
EigenLayer and other restaking protocols compound the risk by allowing the same staked ETH to secure multiple services (AVSs). A validator dominant in MEV extraction can also dominate AVS security, creating a single point of failure. The slashing conditions for complex off-chain services like oracles or bridges are untested at scale.\n- Security is not infinitely divisible\n- Correlated failures across AVSs become systemic
$15B+
TVL at Risk
N/A
Slashing Precedent
04
Solution: Encrypted Mempools & SUAVE
The endgame is to remove the informational advantage from searchers and builders by default. Encrypted mempools (e.g., Shutter Network) and shared sequencing utilities like SUAVE aim to democratize access to order flow. This reduces the economic moat of elite validators and builders, flattening the reward distribution.\n- Pre-execution privacy breaks frontrunning\n- Requires widespread protocol adoption to be effective
0%
Frontrun Success
TBD
Adoption Threshold
05
Solution: Proposer Commitments & Enforcement
Protocol-level rules must enforce validator behavior. In-protocol proposer commitments (IPCs) would allow validators to commit to inclusion lists or anti-censorship policies, with slashing for non-compliance. This moves trust from off-chain cartels to cryptoeconomic penalties. Ethereum's PeerDAS is a step towards this by enforcing data availability.\n- Shifts leverage back to individual stakers\n- Aligns with Ethereum's credibly neutral ethos
100%
Enforceable
Post-Dencun
Timeline
06
Solution: Intent-Based Architectures
Moving users away from transactional asset pushing to declarative intent solving fundamentally changes the MEV supply chain. Protocols like UniswapX, CowSwap, and Across use solvers who compete for user satisfaction, not transaction ordering. This bypasses the public mempool and its associated extractive markets entirely.\n- MEV becomes a solver competition, not a validator privilege\n- User experience improves as complexity is abstracted
$10B+
Settled Volume
~100%
Better Price
SECURITY RE-EVALUATION
The MEV Supply Chain: Who Captures the Value?
A comparison of how different validator strategies and protocols redistribute MEV value, challenging the 'honest validator' model of PoS security.
| Extraction Mechanism / Metric | Solo Validator (Baseline) | MEV-Boost Relay | Proposer-Builder Separation (PBS) Protocol |
|---|---|---|---|
Primary Revenue Source | Block Rewards + Basic Tips | Block Rewards + Relay Auctions | Block Rewards + Builder Auctions |
MEV Capture Rate | 0-5% of available MEV | 30-80% of available MEV |
|
Validator Hardware Requirement | Standard Node (<$5k) | Standard Node + Relay API | Builder Node ($50k+ specialized hardware) |
Censorship Resistance | |||
Extractable Value per Block (ETH, est.) | 0.001 - 0.01 ETH | 0.01 - 0.1 ETH | 0.1 - 1+ ETH |
Centralization Pressure on Validator Set | Low | High (Relay Dependence) | Extreme (Builder Oligopoly) |
Protocols Enabling This Model | Vanilla Ethereum | Flashbots, bloXroute, Titan | EigenLayer, SUAVE, Shutter Network |
Security Assumption Violated | Honest Majority | Credible Neutrality | Economic Finality |
deep-dive
THE INCENTIVE MISMATCH
From Staking Power to Economic Sovereignty
Proof-of-Stake security is undermined when validator profits shift from staking rewards to extractable value, creating systemic risk.
Staking rewards are secondary income. The primary profit for sophisticated validators is now Maximal Extractable Value (MEV) from arbitrage, liquidations, and sandwich attacks. This redefines the validator's economic incentive from securing the chain to exploiting its users.
Economic sovereignty supersedes voting power. A validator's influence is no longer defined by its staked ETH but by its capital efficiency in MEV extraction. Entities like Flashbots and Jito Labs demonstrate that control over transaction flow, not consensus votes, dictates real network power.
Proof-of-Stake security assumptions are obsolete. The classic '1/3 honest' model fails when validators are rational profit-maximizers. A cartel controlling block production via MEV-Boost relays can manipulate state for profit without attacking finality, a risk EigenLayer restaking amplifies.
Evidence: On Ethereum, over 90% of blocks are built by MEV-Boost relays. Validator revenue from MEV frequently surpasses protocol issuance, proving the economic base layer has already shifted.
counter-argument
THE SECURITY RECKONING
The Bull Case: MEV is Inevitable and Manageable
The economic gravity of MEV will fundamentally reshape the security calculus of modern Proof-of-Stake systems.
MEV is a fundamental force in blockchains, not a bug. It is the profit from ordering transactions. This economic gravity attracts sophisticated capital, creating a professionalized validator class that centralizes around high-MEV opportunities.
Proof-of-Stake security assumptions are naive. The '1/3 honest' model ignores that validators are rational economic agents. A profitable reorg or censorship attack becomes viable when MEV rewards exceed the slashing penalty, breaking the security model.
This forces a protocol redesign. Networks like Ethereum post-Merge and Solana must integrate MEV management (e.g., MEV-Boost, Jito) directly into consensus. The future is proposer-builder separation (PBS) as a core primitive, not an add-on.
Evidence: Flashbots' MEV-Boost now powers over 90% of Ethereum blocks. This outsourced block production creates a centralized builder cartel, proving that MEV concentration is the new attack surface.
takeaways
MEV VS. POS SECURITY
TL;DR: The New Security Calculus
Proof-of-Stake security models are built on honest majority assumptions, but MEV creates rational incentives for validators to defect.
01
The Problem: MEV-Boost as a Centralizing Force
The dominant MEV-Boost architecture outsources block building to a handful of searchers and builders, creating a single point of failure and censorship. This centralizes the most profitable part of validation.
- >90% of Ethereum blocks are built via MEV-Boost.
- Top 3 builders control majority of block space, risking liveness failures.
- Validator revenue becomes dependent on a few opaque, off-chain entities.
>90%
Blocks via MEV-Boost
3 Entities
Dominant Control
02
The Solution: Enshrined Proposer-Builder Separation (PBS)
Formalizing the proposer/builder relationship on-chain to preserve decentralization and credibly neutralize censorship. This is Ethereum's endgame.
- In-protocol auctions for block space, removing reliance on MEV-Boost relays.
- Proposer commitments become slashable, enforcing honest inclusion.
- Enables solo stakers to compete for MEV revenue without centralized infrastructure.
Slashable
Commitments
L1 Native
Security
03
The Threat: Cross-Chain MEV and Reorgs
Multi-block MEV opportunities (e.g., cross-DEX arbitrage) create incentives for time-bandit attacks and chain reorganizations. This directly attacks the finality guarantee of PoS.
- $100M+ opportunities can justify bribing a validator super-majority.
- Projects like Espresso Systems and Axiom enable provable multi-block MEV.
- Undermines the core "honest majority" economic assumption of PoS.
$100M+
Attack Incentive
Super-Majority
Bribe Target
04
The Mitigation: SUAVE and Intents
Shifting execution complexity off-chain to a neutral, decentralized mempool. SUAVE and intent-based architectures (like UniswapX and CowSwap) pre-reveal user preferences, neutralizing frontrunning.
- MEV is extracted pre-chain in a competitive, permissionless auction.
- Returns value to users via better execution prices.
- Reduces the profit and feasibility of on-chain validator-level attacks.
Pre-Chain
Execution
User Value
Returned
05
The Metric: MEV as % of Staking Yield
Security is compromised when MEV revenue dwarfs base staking rewards. Validators are economically incentivized to maximize MEV capture, even if it violates protocol rules.
- On Ethereum, MEV can be 30-100%+ of total validator rewards.
- This creates a feedback loop: more MEV attracts more sophisticated (and potentially malicious) capital.
- The security budget must account for this variable, high-value attack surface.
30-100%+
Of Staking Yield
Variable
Attack Surface
06
The Reality: Modular Chains Are More Vulnerable
Rollups and app-chains with fast, cheap blocks and centralized sequencers are low-hanging fruit for MEV extraction and attacks. Their security is often borrowed and not designed for MEV-resistance.
- Single sequencer models are trivial to exploit.
- Fast finality on L2s can be reversed by L1 reorgs.
- Shared sequencer projects like Astria and Espresso must solve this to be credible.
Single Point
Sequencer Risk
Borrowed
Security
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall