DLT Interoperability and More ⛓️#26 — Time to Bribe: Measuring Block Construction Markets⛓️

In this series, we analyze papers on blockchain and interoperability.

This edition covers a paper on MEV (Maximum Extractable Value) and PBS (Proposer Builder Separation).

➡️ Title: Time to Bribe: Measuring Block Construction Markets
➡️ Authors: Anton Wahrstätter, Liyi Zhou, Kaihua Qin , Davor Svetinovic , Arthur Gervais

➡️ Paper source: https://arxiv.org/pdf/2305.16468.pdf

➡️ Background:

In this section we will introduce some background on MEV and PBS.

“PBS mechanism differentiates between various participants while fundamentally reducing the power of PoS proposers in determining which transactions are included within their proposed blocks. The PBS system comprises three unique roles: searchers, builders, and relays, all with distinct responsibilities. These specialized agents work together to profit from fleeting arbitrage opportunities, commonly known as Miner Extractable Value. This value primarily stems from pricing inconsistencies across Decentralized Finance (DeFi) platforms [12], discrepancies between the pricing of decentralized and centralized exchanges, or price variances across different blockchain platforms [14]. In the PBS framework, the primary role of searchers is to identify MEV opportunities and then assemble transaction bundles that exploit these prospects. Once these bundles are assembled, they are handed over to builders, who commence crafting blocks that optimize revenue generation. In parallel, relays scrutinize these blocks, pinpoint the most profitable ones, and relay those to the proposers. The block proposer chosen to propose the upcoming block can utilize the MEVBoost software to receive externally built blocks to fulfill its role effectively [3]. Proposers, formerly referred to as miners, are faced with a decision: they must choose whether to accept blocks suggested by a relay or to propose blocks they’ve constructed locally, incorporating transactions either from Ethereum’s openly accessible peer-to-peer layer or transmitted directly to them through other parties. In this context, transactions pending verification typically reside within a data structure known as the mempool.”

The Background section contains a more in-depth introduction to MEV and PBS.

Onto the paper! All images are from the paper.

➡️ Motivation:

• PBS attempts to increase the decentralization of Ethereum’s network by separating (block building) actor roles.

➡️ Contributions:

• The authors “study the Ethereum block construction market, spanning from the introduction of PoS and PBS in September 2022 to May 2023"

💪 Strong points:

• The authors seemed to have put a lot of effort into collecting, treating, and making data available, contributing to the reproducibility of the study.
• There are numerous insights that the authors discovered and explained in the paper. More in a later section.

🤞 Suggestions for improvement:

• It would be interesting to see a section on future research challenges and possible directions of the industry.

🔥 Points of interest:

• “Despite the intention of the PBS architecture to enhance decentralization by separating actor roles, it remains unclear whether its design is optimal. Implicit trust assumptions and conflicts of interest may benefit particular parties and foster the need for vertical integration. MEV-Boost was explicitly designed to foster decentralization, causing the side effect of enabling risk-free sandwich extraction from unsuspecting users, potentially raising concerns for regulators.”

• Figure 13 seems to indicate that the MEV block market is (possibly) becoming more decentralized, due to an increase of the diversity of proposers.

🚀 What are the implications for our work?

• As a node provider, Blockdaemon supports Ethereum’s Open Source client software, and promotes decentralized, democratized MEV. Learn more here: https://www.blockdaemon.com/blog/how-blockdaemon-supports-ethereums-open-source-client-software