Block Building Algorithm

The algorithm's primary function is to select transactions from the mempool and determine their execution order. This is not random; builders optimize for maximum extractable value (MEV) and fee revenue. Common strategies include:

• Fee-based ordering: Sorting by transaction fee (e.g., Ethereum's base fee + priority fee).
• Time-based ordering: Using timestamps for fairness (e.g., some DAG-based protocols).
• MEV-aware bundling: Grouping arbitrage or liquidation transactions to capture value.

Algorithms must efficiently pack transactions to maximize the utility of finite block space (gas limit or block size). This involves solving a knapsack problem, where the goal is to include the most valuable set of transactions without exceeding the block's capacity. Advanced builders use complex combinatorial optimization to create dense, profitable blocks, directly influencing network throughput and gas prices.

A defining feature of modern algorithms is their explicit handling of MEV. Builders actively search for and extract value from transaction ordering (e.g., DEX arbitrage, liquidations). The algorithm's design dictates who benefits:

• Builder-Proposer Separation (BPS): Specialized builders compete, with profits potentially shared with the proposer.
• Proposer-Builder Auctions: Builders bid for the right to construct a block, with the winning bid paid to the validator.

The algorithm determines a network's resilience to transaction censorship. A builder can exclude transactions based on origin or content. Key mechanisms to mitigate this include:

• Credible neutrality: Algorithms that are content-agnostic (e.g., pure fee-based ordering).
• Inclusion lists: Proposers can force the inclusion of specific transactions.
• Permissionless builder markets: Open competition reduces the power of any single builder to censor.

Before proposing a block, the algorithm must simulate its execution to ensure it is valid and profitable. This involves:

• Checking for double-spends and invalid state transitions.
• Estimating gas consumption and ensuring the block is within limits.
• Calculating the total fees and MEV captured. This step is computationally intensive and requires access to a full execution client.

Algorithms operate under strict time limits, typically the block time of the network (e.g., 12 seconds for Ethereum). The builder must complete transaction selection, ordering, simulation, and signing within this window. This constraint favors efficient, often greedy, algorithms over exhaustive searches, creating a trade-off between optimality and practicality.

A design paradigm, not a single implementation, that formally separates the roles of block proposing (consensus) and block building (execution). It's a core architectural response to MEV centralization risks.

• In-protocol PBS: A future Ethereum upgrade (e.g., enshrined PBS) that bakes the separation into the protocol consensus layer.
• Benefits: Mitigates centralization, reduces hardware requirements for validators, and contains the influence of powerful builders.
• Contrast: MEV-Boost is an out-of-protocol implementation of PBS.

A major critique of current outsourced block building models. A small number of entities (e.g., bloXroute, Relayoor, Ultrasound Money) often control a majority of the built blocks, creating systemic risks.

• Risks Include: Censorship (excluding certain transactions), Collusion, and Chain Re-orgs (if builders have enough stake).
• Data: On Ethereum, the top 3 builders frequently construct >80% of MEV-Boost blocks.
• Solutions: Enshrined PBS, SUAVE, and diverse relay criteria are attempts to mitigate this.

Aptos's native, in-protocol block building mechanism designed for fairness and efficiency. It uses a two-phase block metadata ordering process before execution.

• Phase 1 - Ordering: The proposer orders transaction metadata (hashes) into a block.
• Phase 2 - Execution: All other validators execute the ordered transactions concurrently to generate the block's final state.
• Advantage: Reduces the advantage of specialized builders, as the heavy computation (execution) is done in parallel by the network, not a single entity.

The mempool (memory pool) is the network-wide, temporary holding area for all broadcasted but unconfirmed transactions. Block builders source transactions from this pool, applying their algorithm to select which ones to include. Key characteristics include:

• Dynamic State: Constantly updated as new transactions arrive and old ones are confirmed.
• Local Views: Different nodes may see slightly different mempools due to network latency.
• Fee Market: Transactions compete for inclusion based on their attached gas fees, creating a priority queue for builders.

MEV is the maximum value that can be extracted from block production beyond standard block rewards and gas fees, by including, excluding, or reordering transactions. Block building algorithms are central to MEV strategies:

• Sources: Includes arbitrage, liquidations, and frontrunning opportunities.
• Builders' Role: Sophisticated algorithms search for and bundle these profitable opportunities.
• MEV-Boost: A prevalent middleware on Ethereum that allows validators to outsource block building to a competitive market of specialized builders who bid for the right to fill the block.

Proposer-Builder Separation is a design paradigm that decouples the role of the block proposer (e.g., a validator) from the block builder. It aims to mitigate centralization risks and MEV-related issues.

• Builder: Specialized entity running a complex algorithm to construct the most valuable block.
• Proposer/Validator: Selects the most profitable block header from a public marketplace (like MEV-Boost).
• Benefit: Reduces the hardware and expertise burden on individual validators while creating a competitive market for block space.

Transaction ordering is the sequence in which transactions are placed within a block, a critical function of the building algorithm. Order affects:

• State Dependencies: A later transaction may depend on the outcome of an earlier one.
• MEV Extraction: Specific orders can enable arbitrage or sandwich attacks.
• Fairness: Naive First-In-First-Out (FIFO) ordering is simple but inefficient; most builders use a fee-based priority model, often optimized for profit.

The block gas limit is the maximum total amount of gas (computational work) allowed in a single block. It is a key constraint for the block building algorithm.

• Hard Constraint: The builder's algorithm must select a set of transactions whose cumulative gas does not exceed this limit.
• Optimization Problem: Builders solve a knapsack problem to maximize total fees (or MEV) within the gas limit.
• Dynamic: The limit can be adjusted by the network through governance or automatic mechanisms.