Proposer Extractable Value (PEV)

Proposer Extractable Value (PEV) is the total value a block proposer can capture by manipulating the content and ordering of transactions within a block. It is a superset concept that encompasses Miner Extractable Value (MEV) in Proof-of-Work systems and Validator Extractable Value (VEV) in Proof-of-Stake systems. The term PEV emerged to provide a consensus-agnostic framework for analyzing the economic incentives and potential centralization risks inherent in the role of the block proposer, regardless of the underlying blockchain's security mechanism.

The sources of PEV are identical to those of traditional MEV and arise from the proposer's unique ability to order, include, or censor transactions. Key strategies include arbitrage (profiting from price differences across decentralized exchanges), liquidations (triggering and capturing collateral from undercollateralized loans), and sandwich attacks (placing orders around a victim's trade to manipulate price). The proposer can execute these strategies themselves via inclusion or sell the right to do so to searchers via a private channel, often through a block-building marketplace.

PEV has significant implications for blockchain security and fairness. The substantial financial rewards create an incentive for proposers to invest in specialized infrastructure and engage in proposer-builder separation (PBS), where sophisticated builders construct optimized blocks for proposers. This can lead to centralization pressures, as entities capable of maximizing PEV capture gain a competitive advantage. Furthermore, the extraction process often results in negative externalities for regular users, such as increased transaction costs and worsened execution prices due to front-running.

The ecosystem is developing both technical and market-based solutions to mitigate PEV's negative effects. Technical solutions include encrypted mempools and commit-reveal schemes to reduce the proposer's informational advantage. Market-based solutions, like PBS with crLists (censorship resistance lists), aim to separate block building from proposing while preserving transaction neutrality. Protocols like EigenLayer also explore restaking mechanisms to create slashing conditions for malicious MEV extraction, aligning proposer incentives with network health.

Understanding PEV is critical for developers building DeFi applications, as its dynamics directly impact user experience and protocol security. Analysts and CTOs must consider PEV when evaluating blockchain design, as it influences transaction finality, fee markets, and the economic security of the consensus layer. The ongoing research into PEV quantification and mitigation represents a core challenge in designing equitable and robust decentralized systems.

Proposer Extractable Value (PEV) is the realized profit a block proposer (e.g., a validator) captures by strategically ordering, including, or excluding transactions within a block they produce. It is the concrete execution of the abstract opportunities identified as Maximal Extractable Value (MEV). The PEV mechanism works by the proposer, or a builder acting on their behalf, constructing a block that maximizes their revenue, which typically comes from - transaction fees, - coinbase transfers (direct payments from searchers), and - the value of any arbitrage or liquidation trades they insert. This process directly influences network economics and user experience.

The workflow for capturing PEV typically involves a multi-party ecosystem. Searchers run bots to detect profitable MEV opportunities (like arbitrage) and submit transaction bundles to builders via a private channel or a public mempool. Builders compete to construct the most profitable block by optimizing the order of these bundles and regular transactions. They then submit their block, along with a payment (the PEV), to a proposer (validator) via a relay. The proposer's role is to select the most valuable block header presented to them, thereby claiming the PEV contained within. This separation of roles is formalized in proposer-builder separation (PBS) architectures.

PEV extraction has significant implications. It creates a competitive market for block space, which can lead to - increased validator revenue, - more sophisticated blockchain infrastructure, and - potential centralization pressures as building requires significant capital and expertise. Crucially, while MEV represents the total possible value, PEV is the portion that is successfully extracted and distributed; some MEV may remain unexploited due to technical constraints or competition. The distinction is vital for analyzing blockchain economics and the actual rewards flowing to network validators.

Mitigating the negative externalities of PEV, such as transaction frontrunning and network congestion, is a major focus of protocol design. Solutions like in-protocol PBS (e.g., Ethereum's proposed enshrined PBS), fair ordering protocols, and encrypted mempools aim to democratize access to MEV opportunities and reduce the advantage of sophisticated players. By altering how blocks are built and proposed, these mechanisms seek to change the PEV capture process, making it more transparent and distributing its benefits more widely across the network participants.

PEV flow describes the lifecycle of extractable value within a Proposer-Builder Separation (PBS) framework, tracing its origin from MEV opportunities in the mempool to its final distribution between network participants. The flow begins when searchers identify profitable transaction orderings or inclusions (e.g., arbitrage, liquidations) and submit optimized transaction bundles, along with a bid, to specialized block builders. These builders compete to construct the most valuable block by aggregating these bundles, with the total value of the bids constituting the Proposer Extractable Value (PEV) for that block slot.

The builder then submits its complete block, along with a bid commitment for the PEV, to a public relay. The relay validates the block and forwards the header and the associated bid to the current block proposer (validator). The proposer's role is simplified to selecting the header with the highest bid. Upon choosing a winner, the proposer signs and publishes the block header, committing to that specific block body. The critical financial transaction—the transfer of the PEV bid from the builder to the proposer—typically occurs off-chain or via a trusted payment channel facilitated by the relay.

This flow fundamentally alters value distribution: builders capture the complex MEV from searchers, converting it into a simpler PEV payment for proposers. The separation ensures that the entity proposing the block (who controls consensus) is distinct from the entity constructing it (who optimizes for profit). Key infrastructure like MEV-Boost on Ethereum operationalizes this flow, creating a competitive marketplace for block space. The efficiency of this flow directly impacts validator rewards and network security, as a significant portion of staking yield can originate from PEV.

Variations in the PEV flow exist based on PBS implementation. In an enshrined PBS system, the payment and selection mechanism is baked directly into the protocol's consensus layer, potentially using a credible commitment scheme. In an outsourced PBS model (like MEV-Boost), trust assumptions are placed on external relays to honestly mediate the bid and block transfer. The flow also highlights new risks, such as builder censorship or time-bandit attacks, where a builder might reorg a block if a more profitable MEV opportunity emerges, challenging the finality of the flow's outcome.