Builder Competition

Builder competition is a core mechanism in modern blockchain architectures, particularly those employing proposer-builder separation (PBS). In this model, the roles of constructing a block (selecting and ordering transactions) and proposing it (signing and broadcasting it to the network) are separated. Specialized participants known as block builders compete in an auction, submitting bids to validators (the proposers) for the right to have their block included in the chain. The validator typically selects the block with the highest associated bid, which is paid to them as a reward, creating a competitive market for block space.

This competition is primarily driven by maximal extractable value (MEV), the profit that can be generated from strategically ordering transactions within a block. Builders employ sophisticated algorithms to identify and capture MEV opportunities—such as arbitrage, liquidations, or front-running—to create more profitable blocks. A higher-profit block allows a builder to submit a higher bid to the validator, increasing their chance of winning the auction. This process incentivizes builders to develop advanced infrastructure for transaction simulation and bundling, ultimately leading to more efficient capital markets on-chain and increased revenue for validators.

The primary arena for builder competition is the relay, a trusted intermediary that receives sealed block bids from builders and submits them to validators. Key metrics of a healthy competitive landscape include the number of active builders, the distribution of blocks won (to prevent centralization), and the builder payment (bid) amounts. While competition drives innovation and efficiency, it also raises concerns about potential centralization if a few builders gain dominant market share through superior resources or exclusive order flow arrangements, which is a key focus of ongoing protocol research and design.

Builder competition is the market-driven process in which specialized nodes, known as block builders, compete in a sealed-bid auction to have their proposed block accepted by a validator or proposer. This competition is central to proposer-builder separation (PBS), a design paradigm that decouples the roles of block proposal and block construction. Builders aggregate user transactions from the mempool, order them, and potentially include MEV (Maximal Extractable Value) opportunities to create the most valuable block possible. They then submit their block along with a cryptographic commitment and a bid to a relay, which facilitates the auction.

The validator, whose turn it is to propose a block, does not build it themselves. Instead, they receive the header of the highest-bidding block from a trusted relay. The validator simply signs and publishes this header, committing the network to the underlying block body. The builder who won the auction has their full block revealed and appended to the chain. The validator receives the bid payment, often called the proposer payment, as compensation for selecting that builder's block. This system incentivizes builders to be efficient and offer high bids, as the validator is economically motivated to choose the most profitable option.

This competition creates several key outcomes. It professionalizes block production, as builders invest in sophisticated infrastructure for transaction sourcing, ordering, and MEV extraction. It also enhances chain efficiency and revenue by ensuring blocks are constructed to maximize value for the proposer. Furthermore, by separating the roles, PBS aims to improve censorship resistance and decentralization; validators can choose from multiple competing builders, reducing the power of any single entity to control transaction inclusion. Protocols like Ethereum implement this through mev-boost in practice, with a view to native PBS integration in future upgrades.

The builder competition flow is the core economic and technical process in proposer-builder separation (PBS) architectures, most notably in Ethereum's post-merge design. It begins when a block proposer (e.g., a validator) announces an auction for the right to build the next block. Specialized block builders then compete in this auction by constructing candidate blocks, which are execution payloads containing ordered transactions. Their primary competitive lever is the builder bid, a promise to pay the proposer a fee (often via a MEV-Boost relay) if their block is selected. The builder aims to maximize its own profit from transaction fees and maximal extractable value (MEV) opportunities, while crafting the most attractive bid for the proposer.

The flow's second stage involves block submission and validation. Builders submit their complete, signed block proposals to a trusted relay. The relay performs critical duties: it validates the block's correctness (e.g., execution state root), attests that the builder's bid is backed by sufficient funds, and shields the proposer from viewing the block's content until after selection to prevent theft of its MEV strategies. The relay then presents a list of valid header-bid pairs to the proposer, who selects the header with the highest bid. This selection is often automated by the proposer's software to maximize rewards.

Finally, the chosen builder's block is propagated and finalized. The proposer signs the block header received from the relay and broadcasts it to the network, effectively attesting to the builder's work. The underlying execution payload is then revealed and executed by the network's nodes. This entire flow—from auction to finalization—must complete within the tight constraints of a slot (12 seconds on Ethereum). The intense competition incentivizes builders to develop sophisticated block-building algorithms and MEV extraction techniques, fundamentally shaping network efficiency, validator revenue, and transaction inclusion dynamics.