Ethereum Proposer Builder Separation Explained

Key Takeaways

• Proposer Builder Separation (PBS) enhances Ethereum’s security by separating block proposers from block builders, reducing validator influence over transaction ordering.
• Block proposers validate and finalize blocks, while block builders construct the block body by selecting, structuring, and ordering transactions to maximize potential revenue.
• MEV bots can manipulate transaction order by bribing block builders, thus enabling sandwich attacks that exploit traders by front-running and back-running their transactions for profit.
• Despite PBS improving Ethereum’s decentralization, block builders remain vulnerable to MEV manipulation, requiring ongoing countermeasures to protect users from unfair transaction exploitation.

Validators are at the heart of Ethereum’s proof of Stake (PoS) mechanism, creating new bundles of transactions and adding them to the blockchain. But the use of MEV tactics, which sees validators incentivized to optimize blocks of transactions, has raised concerns about the efficiency of Ethereum. Some worried the network had become too centralized.

In response to these concerns, the Proposer Builder Separation model was introduced. In this article, let’s take a look at Proposer Builder Separation, understanding what it means, and why it matters on Ethereum.

What Is Proposer Builder Separation?

PBS is an arrangement that ensures no single entity constructs and finalizes a block on Ethereum. It is designed to prevent the concentration of power around a small elite of Ethereum validators.

While previously, blocks were both created and added to the blockchain by validator nodes, PBS splits these responsibilities across different actors. Now, block builders compose bundles of transactions to create a block, while block proposers finalize those pre-built blocks on the blockchain.

Why Does Ethereum Need Proposer Builder Separation?

PBS was proposed to help future-proof the Ethereum blockchain against centralization, and reduce some of the inefficiencies that pervade the network.

Addressing MEV Concerns

Validators on Ethereum wield significant influence over the production of new blocks. They decide which transactions go into each block, and in what order. This paved the way for MEV – maximal extractable value – where validators carefully select the transactions that fill each new block in order to extract value for themselves. This posed a problem for Ethereum because validators could prioritize their own incentives over the fairness of the network.

Proposer Builder Separation was introduced to ensure efficiency remained a priority for validators. Block builders – a separate group – are now charged with selecting and optimizing bundles of transactions for new blocks. Meanwhile, validators are solely concerned with selecting new blocks to add to the blockchain, and have no influence over their composition. By simplifying the role of validators to the simple task of proposing new blocks, PBS makes running a validator node straightforward and keeps the network efficient.

Censorship Resistance

With validators able to select or decline pending transactions based on whether extra value can be extracted, some transactions will inevitably be ignored. This leads to censorship, where individual validators can subvert the network by deciding to reject certain transactions. This is anathema to the philosophy and intention of blockchain technology. By separating the tasks of parsing transactions and adding new blocks – and incentivizing efficiency for both roles – PBS aims to ensure the Ethereum network remains censorship resistant.

Enhanced Network Resiliance

MEV opportunities are a lucrative but competitive market. Naturally, larger validators with access to the most sophisticated infrastructure and expertise tend to monopolize the playing field, making them a single point of failure for Ethereum. By spreading the MEV supply chain across two distinct groups, PBS prevents individual validators from accruing too much influence over the network, and maintains decentralization.

What Is a Block Proposer on Ethereum?

A block proposer is responsible for selecting and finalizing blocks that are added to the Ethereum blockchain. Under the PoS model, validators act as block proposers by taking pre-built blocks from block builders and committing them to the blockchain. Therefore, the primary role of a proposer is to verify and finalize a block, ensuring that it follows Ethereum’s consensus rules.

Proposers are selected based on their staked ETH, and their responsibilities include:

• Verifying the integrity of the block
• Checking that transactions comply with network rules
• Broadcasting the finalized block to other nodes
• Receiving staking rewards for their participation

What Is a Block Builder on Ethereum?

A block builder is responsible for constructing the block body itself, which includes selecting, validating, ordering, and structuring transactions. Unlike proposers, builders are not required to be staked validators. Instead, they participate in the Ethereum network by competing to create the most profitable block. They then submit it to a block proposer for finalization.

The key responsibilities of a block builder include:

• Selecting transactions from the mempool
• Ordering transactions to maximize potential revenue
• Structuring the block to include high-fee transactions
• Submitting the block to a proposer for validation

Builders play a crucial role in Ethereum’s transaction prioritization system. At the same time, their influence over transaction ordering makes them excellent targets for MEV bots, which offer bribes to prioritize certain transactions for profit.

Block Proposer vs Block Builder Comparison

Let’s get a better idea of the differences between a block proposer and a block builder by comparing them in the table below.

What Is a Searcher in Ethereum?

A searcher is a bot that scans the Ethereum mempool to identify profitable MEV opportunities. It is sometimes known as a MEV Bot. In other words, maximal extractable value refers to the additional revenue extracted by manipulating transaction order. In addition, searchers use automated scripts to detect crypto arbitrage, liquidation, and sandwich trading opportunities, then execute transactions to capitalize on them.

Searchers typically:

• Identify profitable MEV strategies in the mempool
• Then, submit transactions strategically to extract value
• Finally, they bribe block builders to include their transactions at the optimal position

Why Is Proposer Builder Separation Important?

PBS is essential for improving Ethereum’s decentralization and security. It limits validator collusion with MEV bots by preventing block proposers from controlling transaction order. This separation helps:

• Reduce centralization risks by preventing large validators from monopolizing MEV profits
• Increase fairness in transaction ordering, ensuring that users don’t fall victim to MEV strategies
• Improve Ethereum’s efficiency by allowing specialized block builders to optimize block creation

By maintaining a clear separation of roles, PBS balances Ethereum’s security while minimizing the negative impact of MEV strategies.

How Can MEV Attacks Exploit Block Builders?

MEV attacks exploit block builders by taking advantage of their control over transaction ordering. Furthermore, a common MEV strategy is the sandwich attack, where a searcher places two transactions around a trade. The basic mechanism of a sandwich attack goes as follows:

1. The Searcher (MEV bot) scans the mempool for a large trade.
2. Then, it submits a high-priority buy order ahead of the victim’s trade.
3. The victim executes their trade, unknowingly increasing the token price.
4. The searcher submits a sell order at the inflated price, making a profit.
5. The block builder includes these transactions in the block, accepting a “bribe” (MEV payment) from the searcher.
6. Lastly, the proposer finalizes the block, and the victim ends up paying a higher price for their trade.

A recent MEV attack on Uniswap involved a bot executing a sandwich attack that extracted over $215,000 from a single victim. The attack exploited a large trade via a sandwich attack, causing the victim increased slippage and massive losses.

Here’s how the attack occurred:

• The searchers monitored transactions to detect the user’s swap for roughly $220,000 in stablecoins.
• Since the user wanted to swap USDC to USDT, the bot frontran the transaction and swapped out all the USDC liquidity out of the pool.
• After the transaction concluded, the bot put the liquidity back into the pool.
• Finally, to make the attack possible, the bot tipped a block builder for $200,000 and took $8,000 in profit.

By allowing searchers to influence builders, there’s a lucrative incentive for MEV bots to extract value from unsuspecting traders.

Closing Thoughts

Proposer Builder Separation is a crucial mechanism that enhances Ethereum’s decentralization and fairness. By splitting the roles of block proposers and builders, PBS helps prevent validators from profiting unfairly from MEV strategies. However, it also introduces new risks by making block builders the main point of influence for MEV bots.

While PBS is a significant improvement for Ethereum’s security, MEV attacks remain a challenge. Consequently, users and developers must always stay informed about the evolving MEV strategies and implement countermeasures.

About the author

Tasho Tashev

Tasho is a passionate enthusiast of all things blockchain, Web3 and cryptocurrency. With a keen interest in the cutting-edge intersection of technology and entertainment, he loves sharing stories that inform and inspire.

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