Proposer-Builder Separation (PBS)

PBS formally splits the traditional validator role into two distinct entities:

• Proposer: A validator responsible for proposing a new block header to the network. The proposer's role is simplified to selecting the most profitable or desirable block from a marketplace.
• Builder: A specialized node that constructs the full block contents, including transaction ordering and MEV extraction. Builders compete in an open market to create the most valuable blocks for proposers.

By creating a competitive marketplace for block space, PBS reduces the ability of any single entity to censor transactions. Builders have a financial incentive to include all profitable transactions, making it economically irrational to exclude valid transactions based on origin or content. This is enforced through mechanisms like crLists (censorship resistance lists), where proposers can force builders to include certain transactions.

PBS creates a transparent and competitive market for Maximal Extractable Value (MEV). Specialized builders, often using sophisticated algorithms, compete to extract value from transaction ordering (e.g., arbitrage, liquidations). The resulting profits are shared with the proposer via the block bid, democratizing access to MEV revenue and reducing the advantage of centralized, off-chain "dark pools."

There are two primary implementation paths for PBS:

• Enshrined PBS (ePBS): The separation is baked directly into the core consensus protocol. This is the long-term goal for networks like Ethereum, as it provides the strongest guarantees.
• Builder API (out-of-protocol PBS): An interim, market-driven solution where proposers and builders coordinate via a relay using an external API. This is the current state of Ethereum's mev-boost ecosystem, which has achieved significant adoption.

In current out-of-protocol PBS (e.g., mev-boost), a relay is a critical third-party component that sits between builders and proposers. Its functions include:

• Receiving block bids from builders.
• Validating block correctness (e.g., payload validity).
• Preventing frontrunning and bid theft by only revealing the winning block header to the proposer.
• Relays introduce a trust assumption, as they must be honest in their role. Enshrined PBS aims to eliminate this trusted intermediary.

PBS improves network economic security and efficiency by:

• Maximizing Validator Revenue: Proposers receive the highest possible bid for their block proposal slot, directly increasing staking yields.
• Reducing Centralization Pressure: By separating the capital requirement for staking (proposing) from the technical requirement for MEV extraction (building), it allows for a more diverse and specialized ecosystem.
• Optimizing Block Space: Professional builders create denser, more economically optimal blocks, improving overall network throughput and gas efficiency.

Enshrined Proposer-Builder Separation (ePBS) aims to bake PBS directly into Ethereum's consensus layer protocol. This long-term upgrade seeks to replace reliance on external relays with a trust-minimized, cryptographic mechanism. Key goals include:

• Censorship resistance: Formalizing builder commitments on-chain.
• Relay elimination: Reducing reliance on trusted third parties.
• Protocol guarantees: Ensuring liveness and fairness are protected by the core protocol rules.

PBS creates a specialized builder market. Searchers identify profitable MEV opportunities (e.g., arbitrage) and send transaction bundles to builders. Builders aggregate these bundles, optimize block ordering for maximum fee revenue, and submit complete block bids to relays. The highest bid, meeting validity rules, is delivered to the winning proposer. This supply chain professionalizes block production but centralizes power in a few sophisticated builder entities.

Relays are critical, trusted components in current PBS implementations like MEV-Boost. They act as a bridge between builders and proposers, performing essential functions:

• Bid Privacy: Prevent proposers from stealing profitable block contents.
• Block Validation: Ensure blocks are valid before delivery to proposers.
• Censorship Resistance Lists (crLists): Allow proposers to force inclusion of certain transactions, mitigating censorship. Their centralized operation presents a potential point of failure, motivating the move to ePBS.

PBS fundamentally changes validator economics. By outsourcing block construction, validators can capture significant MEV rewards without needing sophisticated infrastructure, making staking more accessible and profitable. However, it also creates proposer dependency on the builder market. Validator revenue becomes a function of the competitive bid landscape rather than just base fees, introducing new economic variables and potential centralization risks in the builder layer.

In current PBS implementations like Ethereum's mev-boost, a trusted relay sits between builders and proposers. This relay receives the builder's block, verifies its validity and payment, and forwards it to the proposer. This introduces a critical trust assumption:

• Censorship Risk: A malicious relay could withhold blocks or censor specific transactions.
• Data Availability: The relay must correctly attest to the block's contents and the builder's payment (the execution payload header).
• Single Point of Failure: Relay downtime or attack could disrupt block production. The long-term goal is to enshrine PBS in-protocol to eliminate this trusted component.

PBS aims to democratize Maximal Extractable Value (MEV) by creating a competitive, open market for block building. Instead of validators with the best MEV strategies capturing all profits, the system enables:

• Open Bidding: Any builder can participate in auctions, theoretically distributing MEV revenue.
• Proposer Rewards: Even validators with simple setups earn extra revenue via block builder tips.
• Transparent Markets: The auction process can make MEV flows more visible. However, risks remain, such as builder cartels forming to manipulate auctions or exclude competitors.

While PBS mitigates validator centralization, it can concentrate power in the builder layer. A dominant builder or cartel could:

• Manipulate Auctions: Collude to lower bids, reducing proposer rewards.
• Censor Transactions: Exclude transactions from blocks for political or financial reasons.
• Extract Excessive MEV: Use advanced, proprietary strategies that are inaccessible to smaller players. Defenses include builder reputation systems, decentralized builder networks, and protocol rules that limit builder influence over transaction ordering.

A core security requirement in PBS is ensuring the proposer can verify the builder's block before signing and publishing it. This is solved using cryptographic commitments:

• Execution Payload Header: The builder sends a commitment to the full block (the header), which includes the promised payment to the proposer.
• Blind Signing: The proposer signs this header without seeing the full block contents, trusting the relay's attestation.
• Withholding Attacks: A malicious builder could create a valid header but withhold the full block body. Solutions like Data Availability Sampling (DAS) and enshrined PBS are designed to mitigate this risk.