Proposer-Builder Separation (PBS)

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

• Block Builders: Specialize in constructing execution payloads by selecting and ordering transactions, competing to create the most valuable block.
• Block Proposers: (Validators) Specialize in consensus, responsible for proposing the header of the most valuable block they receive, without seeing its contents. This specialization increases overall network efficiency.

PBS creates a competitive, open market for Maximal Extractable Value (MEV). Builders bid in auctions to have their block proposed. The winning bid (the proposer payment) is paid to the proposer, transparently redistributing MEV profits that were previously captured covertly by a subset of validators. This market forces MEV into a public price discovery mechanism.

A core goal of PBS is to strengthen censorship resistance. Through crLists (censorship resistance lists), proposers can force builders to include certain transactions (e.g., from a public mempool) in the blocks they build. This prevents builders from systematically excluding transactions based on origin or content, preserving network neutrality.

PBS can be implemented in two primary ways:

• Protocol-Enshrined PBS (ePBS): The separation is baked directly into the core consensus protocol (e.g., Ethereum's potential future upgrade). This offers strongest guarantees but is complex to implement.
• Builder API (out-of-protocol PBS): The current dominant model, where the separation is enforced via a relay network and the Builder API specification. Builders send blocks to relays, which forward headers to proposers.

In today's out-of-protocol PBS, relays are trusted intermediaries that facilitate the block auction. They:

• Receive full blocks from builders.
• Run proofs of block validity.
• Conduct a sealed-bid auction where proposers see only block headers and associated bids.
• Forward the winning header to the proposer. Relays are critical for trust and efficiency but introduce a potential centralization vector.

PBS fosters a competitive builder market. Entities invest in sophisticated block building algorithms that optimize for:

• Arbitrage and liquidations.
• Transaction ordering for DEX trades.
• Gas optimization. This competition drives innovation, improves block space utilization, and ensures proposers capture a fair market value for their slot through open bidding.

In PBS, builders are specialized entities that construct execution payloads by aggregating and ordering transactions to extract Maximal Extractable Value (MEV). They compete in a sealed-bid auction, submitting complete blocks to relays. Key builder strategies include:

• Arbitrage: Exploiting price differences across DEXs.
• Liquidations: Executing undercollateralized positions in lending protocols.
• Frontrunning: Prioritizing profitable user transactions. Builders like Flashbots, bloXroute, and Eden Network operate sophisticated infrastructure for this purpose.

A relay is a critical, trusted component in current PBS designs like MEV-Boost. It sits between builders and proposers to ensure fairness and prevent attacks. The relay's functions are:

• Receiving block bids from multiple builders.
• Validating block correctness (e.g., execution, signatures).
• Running a sealed-bid auction, revealing only the highest bid to the proposer.
• Delivering the winning block header to the proposer for commitment. Relays mitigate risks like timing games and bid theft, though they introduce a point of centralization.

Enshrined Proposer-Builder Separation (ePBS) aims to formalize PBS within the Ethereum protocol itself, reducing reliance on off-chain, trust-based relays. Proposed designs, such as the Two-Slot PBS model, seek to:

• Embed the builder auction into consensus logic.
• Minimize trust assumptions and centralization points.
• Provide stronger crypto-economic guarantees and liveness properties. This long-term upgrade would make PBS a native, permissionless layer of the protocol, enhancing decentralization and security.

To prevent censorship, PBS designs incorporate mechanisms for proposer influence. A commitment is a signed promise from a proposer to include certain transactions. A censorship resistance list (crList) is a specific implementation where the proposer can force the inclusion of transactions from the mempool. This ensures builders cannot arbitrarily exclude transactions, upholding credible neutrality and compliance with regulations like OFAC sanctions screening, while still allowing builders freedom in ordering.

PBS cannot be understood in isolation from broader ecosystem concepts:

• Maximal Extractable Value (MEV): The economic driver for PBS; profits from transaction ordering.
• Validator: The entity that proposes and attests to blocks, now often a client of the PBS marketplace.
• Execution Payload: The bundle of transactions constructed by the builder and proposed by the validator.
• Single-Slot Finality: A future Ethereum upgrade that may influence PBS design by requiring faster block building.

The PBS model can inadvertently create a new point of centralization among block builders. Economies of scale in MEV extraction and access to sophisticated infrastructure may lead to a small number of dominant builders, undermining the decentralization goals of PBS. This centralization could enable censorship, transaction filtering, or collusion, reintroducing systemic risks the protocol seeks to avoid.

In PBS designs using a trusted relay, proposers must rely on this third party to honestly forward the builder's block and not censor transactions. This creates a single point of failure and a potential censorship vector. If the relay is compromised or acts maliciously, it can prevent valid blocks from being published, leading to missed slots and potential chain instability.

The widespread use of MEV-Boost as an interim PBS solution introduces significant out-of-protocol risks:

• Proposer Collusion: Validators could collude with builders for side payments.
• Relay Failures: A relay outage can cause mass missed slots.
• Data Availability: Proposers must trust the relay's claim that the builder's block body is available. These risks persist until PBS is fully integrated into the core protocol consensus.

Builders, especially large professional entities, may face regulatory pressure to censor transactions (e.g., those from OFAC-sanctioned addresses). This creates a conflict between protocol neutrality and legal compliance. If dominant builders implement filtering, it can effectively censor transactions at the network level, compromising permissionless access and censorship resistance.

The separation creates new economic attack surfaces:

• Builder Collusion: Builders could collude to lower bids, reducing validator revenue.
• Time-Bandit Attacks: A builder could withhold a profitable block to attempt a reorg if a more profitable opportunity arises, threatening chain finality.
• Bid Manipulation: Sophisticated builders might manipulate the auction to extract maximum value at the expense of proposers and users.

Integrating PBS directly into the consensus layer (e.g., via enshrined PBS) adds significant protocol complexity. This increases the attack surface for bugs and vulnerabilities during implementation. New cryptographic components like commit-reveal schemes or partial block auctions must be rigorously audited to prevent exploits that could compromise chain security or stability.