Ethereum Block Auctions Are Not Free Markets

Block builders are the market makers. Validators outsource block construction to specialized builders like Flashbots and bloXroute. This creates a single-point auction where builders compete to pay the validator, not a distributed market of users.

MEV extraction precedes user access. Builders fill blocks by maximizing extractable value (MEV) via arbitrage and liquidation bots. User transactions are residual filler, creating a two-tiered priority system that distorts pricing.

PBS enshrines, not solves, centralization. Proposer-Builder Separation (PBS) formalizes this builder role. It mitigates validator-level MEV but shifts centralization pressure to a builder cartel, as seen in Flashbots' dominant market share.

Evidence: Over 90% of Ethereum blocks are built by three entities. The 'auction' is a bilateral negotiation between a validator and a monolithic builder bundle, not a free-for-all.

PBS is a private auction. The free market for block space exists between users and builders, not builders and proposers. The builder-proposer interface is a permissioned relay network where a handful of entities like Flashbots and bloXroute control the flow of blocks.

Builders are the new validators. The economic power shifts from the 1M+ ETH staked to the ~5-10 elite builders who win the majority of blocks. This creates a cartel of capital where only those with massive MEV extraction capabilities and exclusive order flow can compete.

Relays are the gatekeepers. They enforce censorship resistance lists and attest to block validity, becoming trusted third parties in a system designed to be trust-minimized. This architecture mirrors the permissioned validator sets of chains like Solana or BSC, not Ethereum's permissionless ideal.

Evidence: Over 90% of Ethereum blocks are built by three entities. The builder market's Gini coefficient exceeds 0.95, indicating extreme centralization. This is the proposer-builder cartel in practice.

The auction is broken. A true free market requires many independent buyers and sellers. In Ethereum's block space, the seller is a single monopolist (the block builder), and the buyers (searchers) are a small, collusive oligopoly.

MEV is the primary commodity. The auction's real product is MEV extraction rights, not simple transaction ordering. This creates perverse incentives where builders like Flashbots and bloXroute optimize for maximal extractable value, not user fairness.

Proposer-Builder Separation (PBS) formalizes this. PBS doesn't solve the problem; it institutionalizes the builder monopoly. The separation creates a new, unregulated financial layer where block building is a winner-take-all game dominated by specialized firms.

Evidence: Builder market share. Post-PBS, the top three builders (e.g., Titan Builder, beaverbuild) consistently produce over 80% of blocks. This is centralization by design, not a temporary phase of market immaturity.

Efficiency is a red herring. The argument that a centralized auction is 'more efficient' than a free market is technically true but economically irrelevant. It confuses transaction ordering speed with price discovery. A single actor can order transactions faster, but this eliminates the competitive forces that determine the true cost of block space.

Centralization creates hidden costs. The proposer-builder separation (PBS) model, designed to mitigate this, has failed. Builders like Flashbots and bloXroute now dominate, creating an oligopoly that extracts maximal value. The efficiency gained in milliseconds is dwarfed by the economic rent extracted from users through MEV.

Compare to real markets. A stock exchange like the NYSE is not 'inefficient' because it has many participants; its liquidity pools and order books are the mechanism for fair price discovery. Ethereum's current auction is the equivalent of letting one high-frequency trader set all prices for a minute, which is efficient for them but predatory for everyone else.

Evidence: Builder market share. Data from mevboost.pics shows the top three builders consistently control over 80% of blocks. This concentration proves the auction is not a free market but a captured system where efficiency serves the cartel, not the network.

Ethereum's block space auction is not a free market. It is a first-price sealed-bid auction where builders submit blind bids, leading to chronic overpayment and MEV leakage. This inefficiency is a direct subsidy to validators at the expense of users and sophisticated builders.

Enshrined Proposer-Builder Separation (PBS) is the protocol-level solution. It formally separates block building from block proposing, creating a competitive builder market. This forces builders to compete on execution quality, not just their ability to win a blind auction, directly reducing extractable value.

SUAVE (Single Unified Auction for Value Expression) is the complementary execution layer. It is a specialized mempool and decentralized block builder that aggregates user intents across chains. Unlike opaque private mempools, SUAVE's open auction for order flow aims to democratize MEV capture, similar to the intent-based model of UniswapX or CowSwap.

The combined system creates a real market. Enshrined PBS provides the trust-minimized framework, while SUAVE provides the competitive execution venue. This moves value from validators back to users and applications, fixing the core economic flaw in today's block production.