MEV Auction

A permissionless auction allows any searcher or builder to submit a bid for the right to propose a block. This creates a competitive market where the highest bid wins the right to extract the available Maximal Extractable Value (MEV). The winning bid's value is then distributed to validators or stakers as a protocol reward, aligning economic incentives.

MEV Auctions are a core implementation of Proposer-Builder Separation (PBS). This architectural pattern decouples the roles of:

• Block Builders: Specialized entities that construct optimal, MEV-rich blocks.
• Block Proposers (Validators): Entities that simply select and propose the highest-bidding block. This separation prevents validators from needing sophisticated MEV extraction capabilities and reduces centralization risks.

By moving the auction on-chain, MEV Auctions provide transparent price discovery for block space and MEV. All bids and outcomes are publicly verifiable, which reduces the prevalence of off-chain deals and private order flow. This transparency allows for better analysis of network economics and helps ensure the winning builder's payment is credible and enforceable by the protocol.

A primary economic function is the redistribution of MEV proceeds. Instead of value being captured solely by searchers and validators in opaque ways, the auction's winning bid is paid to the protocol. This revenue can be:

• Burned to benefit all token holders via deflation.
• Distributed to stakers as additional rewards.
• Sent to a community treasury for public goods funding.

Well-designed MEV Auctions can enhance censorship resistance. By forcing builders to compete in an open market, it becomes economically irrational to consistently censor transactions, as a rival builder would simply include them and win the auction. This creates a cost to censorship, making it a less stable strategy compared to a system with dominant, off-chain relay operators.

MEV Auctions rely on and integrate with the broader PBS ecosystem:

• Builder APIs: Standardized interfaces (e.g., Ethereum's builder-specs) for block submission.
• Relays: Trusted intermediaries that receive blocks from builders and forward them to proposers, often implementing the auction logic.
• Block Building Markets: Separate markets where searchers submit transaction bundles to builders.

An MEV Auction is a sealed-bid, first-price auction where searchers (specialized bots) submit bids to a block builder for the right to insert a specific transaction bundle at the top of a block. The winning bid's payment is transferred to the block proposer (validator), redistributing MEV revenue to the protocol's stakers rather than being captured solely by the builder. This creates a transparent price discovery mechanism for block space priority.

The primary implementation is Proposer-Builder Separation (PBS) on Ethereum. In this model:

• Builders construct full blocks, including MEV opportunities, and submit bids to a relay.
• Proposers (validators) simply choose the block header with the highest bid from the relay.
• This separates the power to choose transactions (building) from the power to include them (proposing), reducing validator centralization risks and censorship capabilities.

MEV-Boost is middleware that allows Ethereum validators to outsource block building to a competitive market of builders via PBS, without requiring a consensus-layer upgrade. It acts as a trusted relay, receiving blocks and bids from builders and presenting the most profitable header to the proposer. This interim solution has been widely adopted, with the majority of Ethereum blocks being built through this auction market.

MEV Auctions aim to solve critical ecosystem problems:

• Democratization: Opens MEV revenue to all validators, not just sophisticated operators.
• Transparency: Moves bidding from off-chain, opaque deals to a more visible on-chain or relay-based process.
• Reduced Centralization: Mitigates the incentive for validators to join large, MEV-extracting pools.
• Censorship Resistance: In a decentralized builder market, it's harder to consistently censor transactions.

A specialized ecosystem has emerged around MEV auctions:

• Builders: Software like Flashbots Suave, Blocknative, and Eden that optimize block construction for maximum value.
• Searchers: Entities that run algorithms to identify and bundle MEV opportunities.
• Relays: Critical infrastructure (e.g., Flashbots Relay, BloXroute) that ensure builders cannot steal bids or propose invalid blocks.

Current implementations face ongoing challenges:

• Relay Trust: Proposers must trust relays not to censor or manipulate headers.
• Enshrined PBS: The long-term goal is to move auction logic directly into the protocol (enshrined PBS) to minimize trust assumptions.
• MEV Smoothing: Research into redistributing auction revenue more evenly across all validators, not just the proposer of a specific slot.

An MEV Auction is a permissionless, on-chain auction where block proposers (validators) sell the right to construct a block's transaction ordering to the highest bidder. The winning bidder, typically a sophisticated searcher, pays the auction fee to the proposer and gains the right to order transactions to capture MEV. This creates a transparent market price for block space priority.

By creating a transparent, verifiable revenue stream for validators, MEV Auctions aim to disincentivize off-chain collusion and time-bandit attacks. When MEV rewards are captured via a public auction, the economic incentive for validators to engage in malicious reorgs or secret deals is reduced, as the auction provides a credible, fair-market alternative.

A key design choice is who receives the auction proceeds. Models include:

• Proposer-Pays: Revenue goes directly to the block proposer, increasing validator rewards.
• Protocol-Pays: Revenue is burned or sent to a treasury (e.g., EIP-1559 style), benefiting all token holders.
• User-Pays: Revenue is redistributed to users via MEV rebates, refunding a portion of the value extracted from their transactions.

While mitigating some attacks, MEV Auctions can introduce new risks:

• Builder Centralization: A few sophisticated builders may dominate the auction, becoming de facto block producers.
• Relay Trust: Validators must trust relays to correctly relay headers and payloads, creating a critical trust layer.
• Proposer-Builder Separation (PBS): In-protocol PBS (e.g., Ethereum's roadmap) is designed to mitigate these risks by formalizing the auction within the protocol itself.

MEV Smoothing is a complementary mechanism often discussed with auctions. It aims to distribute auction revenue more evenly across all validators over time, rather than concentrating rewards on the proposer of a single, MEV-rich block. This reduces variance in validator rewards and further disincentivizes targeted attacks or proposer stealing.

An entity or algorithm that identifies and executes profitable MEV opportunities. Searchers:

• Scan the mempool and on-chain state for arbitrage, liquidations, or other opportunities.
• Construct complex bundles of transactions to capture this value.
• Bid in MEV auctions (e.g., via Flashbots) to have their bundle included in a block by a builder. They are the primary source of demand in the MEV supply chain.

A specialized node that constructs full block contents by aggregating transactions and MEV bundles from searchers. Builders compete in an auction by creating the most valuable block possible (maximizing fees + MEV) and submitting a bid to a proposer. Their role is central to Proposer-Builder Separation (PBS), and they often employ sophisticated algorithms to optimize block revenue.

Protocol-level solutions aimed at mitigating the negative externalities of MEV. Fair sequencing (e.g., via consensus rules) enforces a canonical transaction order to prevent frontrunning. MEV smoothing (or redistribution) mechanisms, like proposer rewards, aim to capture extracted MEV and distribute it more broadly to all validators or even to users, rather than letting it accrue to a few specialized actors.