Why Proposer Incentives Are Fundamentally Broken

Proposer incentives are misaligned. The dominant model rewards validators for maximizing immediate extractable value (MEV) from the block space they produce, not for optimizing the network's long-term security or user experience. This creates a principal-agent problem where the interests of the proposer diverge from the interests of the chain's users and builders.

The result is systemic fragility. This misalignment manifests as frontrunning, sandwich attacks, and network congestion, which directly degrade the end-user experience on protocols like Uniswap and Aave. Proposers are financially motivated to exploit, not protect, the applications built on their chain.

Evidence: MEV-Boost dominance. On Ethereum, over 99% of post-Merge blocks are built using MEV-Boost, a system that outsources block construction to specialized searchers. This cements the proposer's role as a passive profit-taker, not an active network steward, and centralizes power in a few relay operators.

Proposer revenue is extractive. Block builders and validators maximize MEV by reordering and censoring transactions, directly harming user execution quality. This creates an adversarial relationship between the network's operators and its users.

Value accrual is misaligned. Protocols like Uniswap and Aave generate billions in fees, but the value is captured by Flashbots and Jito validators, not the L1 or L2 settlement layers. The infrastructure profits while the application layer subsidizes it.

The evidence is in the data. Over 90% of Ethereum blocks are built by centralized builders like Titan and beaverbuild, optimizing for searcher payments. This centralization is the direct result of a fee-only incentive model that ignores long-term network health.

PBS creates information asymmetry. The builder sees all transactions and private orderflow, while the proposer only sees the final block header. This asymmetry is the root of the toxic auction.

The auction is toxic because the builder's profit is the difference between the MEV they extract and the bid they pay. This incentivizes builders like Flashbots and bloXroute to hide value from the proposer to maximize their own cut.

Proposer incentives are broken because they are paid in a sealed-bid, first-price auction. The winning builder's bid only needs to be epsilon above the second-highest, not the true value of the block. The proposer is systematically underpaid.

Evidence: In Ethereum's post-merge PBS, over 90% of MEV is captured by builders and searchers, not the validators (proposers) securing the chain. The proposer's reward is a small, inefficient tax on a much larger value stream.

PBS is a market design patch that outsources censorship and MEV extraction to a specialized builder market. This creates a two-tiered system where validators (proposers) are paid for blind compliance, while builders compete in a dark pool for transaction ordering rights. The core incentive to maximize extractable value at the expense of user experience remains intact.

Builders become the new cartel. The builder market centralizes around a few dominant players like Flashbots' SUAVE or BloXroute, as economies of scale in MEV extraction create unbeatable advantages. This recreates the centralized, extractive power PBS was meant to dismantle, just one layer down the stack.

In-protocol PBS is vaporware. The Ethereum roadmap's in-protocol PBS relies on a cryptoeconomic miracle—a trustless, low-latency, crash-tolerant auction—that remains unsolved. Current implementations like mev-boost are temporary, trusted middleware, proving the structural problem is harder than anticipated.

Evidence: Over 90% of Ethereum blocks are built by just five entities via mev-boost, demonstrating rapid centralization. Builders like Flashbots and Titan consistently win auctions by offering higher bids, which are funded by extracting more value from users in those same blocks.