Bundle Bidding

Bundle Bidding is a MEV (Maximal Extractable Value) extraction strategy where a searcher or builder submits a package of interdependent transactions—such as an arbitrage or liquidation path—to a block builder with an associated bid. This bid represents the premium the searcher is willing to pay to guarantee the entire bundle is executed atomically, meaning all transactions succeed or fail together. The block builder then incorporates this bundle into a candidate block if the bid makes the block more profitable, competing in a builder marketplace like the one enabled by PBS (Proposer-Builder Separation).

The primary technical advantage of bundle bidding is atomicity, which eliminates execution risk for complex, multi-step operations. Without it, a searcher's profitable arbitrage could be sandwiched or fail if intermediate transactions are not included. By bidding on a bundle, the searcher pays for the right to have their entire sequence considered as a single, indivisible unit by the builder. This mechanism is central to Flashbots' SUAVE (Single Unifying Auction for Value Expression) and is a key component of modern MEV supply chains, separating transaction discovery, bundle construction, and block building into specialized roles.

From a network perspective, bundle bidding can improve efficiency and transparency in MEV markets. It moves complex transaction ordering logic off-chain into competitive auctions among builders, potentially reducing negative externalities like network congestion from failed transactions. However, it also centralizes power in sophisticated block builders who can process these bundles. The evolution of bundle bidding is closely tied to Ethereum's roadmap, particularly post-Merge designs like PBS, which formalize the role of builders and create a clear market for block space that includes these complex transaction packages.

Bundle bidding is a mechanism in blockchain transaction ordering where a user (a searcher or builder) submits a package of multiple transactions to be included in a block as a single, atomic unit, often accompanied by a bid to incentivize the block producer. This atomicity is critical: either all transactions in the bundle are included in the block, or none are. The primary goal is to enable complex, interdependent transaction strategies—such as arbitrage, liquidations, or multi-step DeFi interactions—that would be risky or impossible if transactions could be executed individually and potentially separated in the block. The block producer (or validator) evaluates these bundled bids alongside regular transactions, selecting the combination that maximizes their revenue from transaction fees and any additional bid payments.

The process typically involves a specialized actor, the searcher, who identifies profitable on-chain opportunities requiring multiple steps. They construct a bundle containing the necessary transactions and submit it, along with a bid, to a relay or directly to a builder via a private mempool. This bid represents an additional payment to the block producer on top of the standard gas fees from the bundled transactions. Builders competing in a proposer-builder separation (PBS) framework, such as in Ethereum's post-EIP-1559 landscape, then assemble candidate blocks, often incorporating the most lucrative bundles to create the highest-value block for the validator. The winning builder's block, containing the successful bundle, is then proposed to the network.

A key variant is MEV-boost-style bundle bidding, where searchers submit bundles to builders through a relay. The builder's role is to solve a complex optimization problem: selecting a set of bundles and individual transactions that do not conflict (e.g., double-spend the same assets) and that collectively offer the maximum total value, which includes the bid premiums. This creates a competitive market for block space. Crucially, bundle bidding is distinct from simple transaction aggregation; its defining feature is the all-or-nothing execution guarantee, which protects the searcher's strategy from being sandwiched or partially failed.

The implications of bundle bidding are significant for Maximal Extractable Value (MEV) and network efficiency. It formalizes and channels competition for MEV into explicit bid payments, which can be captured by validators (a concept known as MEV smoothing). However, it also raises concerns about centralization, as sophisticated searchers and builders with advanced algorithms and private order flow may have a structural advantage. Protocols like Flashbots pioneered the use of bundle bidding to mitigate the negative externalities of toxic MEV, such as network congestion from failed arbitrage transactions, by moving the competition off-chain into a sealed-bid auction environment.

Bundle bidding is a specialized auction mechanism where a searcher or builder submits a package of interdependent transactions, known as a bundle, to a block builder for potential inclusion in the next block. The builder evaluates the bundle's profitability, which is determined by its total gas fees and MEV (Maximal Extractable Value) potential, and may choose to place a bid to win the right to include it. This process is central to the proposer-builder separation (PBS) model, where specialized builders compete to construct the most valuable block for the block proposer (validator).

The flow typically begins when a searcher, using sophisticated algorithms, identifies a profitable MEV opportunity—such as an arbitrage or liquidation—that requires a specific sequence of transactions to succeed. This sequence is bundled to ensure atomic execution: either all transactions in the bundle succeed, or the entire bundle fails, protecting the searcher from partial execution risk. The searcher then submits this bundle, along with a bid specifying the maximum fee they are willing to pay, to a builder's private mempool or a public marketplace.

Upon receiving multiple bundles and individual transactions, the block builder's optimization software solves a complex packing problem. It must select a set of transactions and bundles that maximizes the total value of the block while respecting constraints like gas limits and dependencies. The builder constructs a complete block candidate and submits a bid—a commitment to pay the proposer a specified amount—to a relay. The relay validates the block's correctness and forwards the highest-bidding block header to the current block proposer.

Finally, the chosen proposer (validator) simply signs and publishes the header of the highest-value block they received from the relay. This action commits the entire block body to the chain. The builder's fee is transferred to the proposer, and the searcher's transactions are executed. The flow ensures that value is efficiently captured and distributed among network participants—searchers, builders, and validators—while maintaining network security and decentralization through the separation of block building and proposal roles.

Proposer-Builder Separation (PBS) is a blockchain protocol design that formally separates the role of the block proposer (who chooses the canonical chain) from the block builder (who assembles transaction order and content). This decoupling is a direct response to the rise of Maximal Extractable Value (MEV), where the ability to order transactions within a block has become a highly specialized and resource-intensive activity. In a PBS model, builders compete in a sealed-bid auction to sell fully constructed blocks to proposers, who then simply propose the highest-bidding block to the network. This specialization aims to prevent the centralization of both stake and block-building expertise into a single dominant entity.

The evolution toward PBS is driven by the inherent conflict in traditional proof-of-stake design: the validator selected to propose a block has both the incentive and the capability to capture MEV, which favors large, sophisticated operators who can run optimized MEV strategies. This creates a feedback loop where profitable MEV capture leads to more stake accumulation, further centralizing power. PBS breaks this loop by allowing proposers (often smaller validators) to outsource the complex task of block construction to a competitive market of builders, while still earning revenue from the auction. The proposer's role is reduced to a simple, verifiable task—selecting the header of the most profitable block—which can be performed with minimal hardware.

A critical implementation of PBS is mev-boost, an out-of-protocol, fork-choice rule-aware middleware used by Ethereum validators post-Merge. It allows a validator (proposer) to connect to a marketplace of builders via relays. Builders submit complete execution payloads (blocks) to relays, which run a trusted auction and deliver the winning block header to the proposer. The proposer signs the header, and only after the block is propagated does it receive the full block body. This commit-reveal scheme ensures the proposer cannot steal the builder's transaction order. While mev-boost is an interim solution, the long-term goal is to embed PBS directly into the Ethereum protocol through enshrined PBS, making the separation trust-minimized and canonical.

The PBS paradigm introduces new actors and considerations. Block builders are specialized entities that aggregate transactions from users and searchers (who submit complex MEV bundles), optimizing for fee revenue and MEV capture. Relays are trusted intermediaries that facilitate the auction, ensure block validity, and prevent censorship. Key challenges include builder centralization (a small number of builders may dominate), censorship resistance (ensuring builders include all valid transactions), and trust assumptions in relays. Future enshrined PBS designs, such as those involving crLists (censorship resistance lists) and builder commitments, aim to mitigate these risks at the protocol level.

The broader evolution of PBS represents a shift in blockchain design philosophy, acknowledging that block production is a distinct economic activity from chain consensus. By creating a dedicated market for block space, PBS aims to democratize access to MEV revenue, improve network efficiency, and preserve the decentralization of the underlying consensus layer. It is a foundational concept for the endgame of Ethereum's roadmap, influencing the design of data availability layers, verifiable delay functions (VDFs) for fair ordering, and the overall security and economic sustainability of proof-of-stake networks.