thanks to Thogard, Dougie DeLuca, ek, askyv, masato james, jun, yupi for discussion and feedback.

Abstracts

This article addresses the centralization of block builders, which may reduce the user experience and censorship resistance of Ethereum. I argue that an important solution from a future where the supply chain building blocks becomes centralized, dominant & predatory is to make the reputation of the builders visible.

Background.

• Factors for centralization

Block builders collect order flow to build high-value blocks. If the collection is only from open, permissionless access, then centralization will not occur. Currently, however, they can be collected from private spaces as well, and this is a factor in centralization.

• Order flow collection channels
  • Public Order Flow: Transactions that are publicly broadcast through mempool and are the easiest to study because anyone with the resources to run a few Ethereum nodes can have high visibility
  • Searcher order Flow: Transactions where the searcher sends bundles to n builders, and needs to select builders who can build highly competitive blocks without stealing their own MEV. Or, in some cases, resourceful searchers who do not want their MEV stolen may build a full block themselves.
  • Private Order Flow: This is the collection of order flow independently through RPC endpoints, and is basically a channel dedicated to a specific builder, so other competing builders do not have access to it.
• Correlation between builder market share and searcher order flow

As the number of searchers increases, the number of bundle order combinations increases, potentially allowing builders to extract more value. For example, the top four of the 38 active builders have a combined 87% market share with more searcher submissions than the other builders, with 88.5% of searchers submitting to four or more builders.

• Rational Searcher Selection

Since the combined market share of the top seven builders covers nearly 94% of the market, the most rational choice for searchers would be to submit to multiple builders.

However, increasing the number of submissions to too many builders makes it difficult to identify which builder has stolen the bundle and makes it easier for one builder to dismantle and sandwich the bundle. Also, if the share ratio is low just because they are trustworthy, they will not be able to build competitive blocks, which will negatively affect inclusion. So how does a searcher select the builders? It chooses a small number of trustworthy builders who can build highly competitive blocks. There is a trade-off between the cost of trusting these builders and inclusion.

Also note that searchers follow economic rationality, so it is likely that they will all make the same choice. For example, if builder A appears in the future with more than 50% market share, a rational choice would be to send to builder A and a few other builders.

Now, what if this is closer to 100%? The rational choice for most searchers would be to send only to the builder with a share rate close to 100%.

This rational choice of searchers and competitive environment of builders will cause centralization of block builders.

What is the problem with centralization of block builders?

• Disincentives for new entrants and competition.

searcher_coverage_normalised.avif

https://frontier.tech/builder-dominance-and-searcher-dependence

The figure of the percentage of blocks built by each builder normalized by searcher transmission rate shows that the differences in searcher transmission among builders are more pronounced. Searcher rationales and the competitive environment of the builder market tend to create further disparities even among the top builders, as certain block builders have the advantage of monopolizing the market, discouraging new entrants and competition.