This is part three of a multi-part series exploring MEV (Maximal Extraction Value).

Through our previous pieces about MEV, we looked into what MEV is, how its mechanism potentially harms your trades, and how the community is currently dealing with problems related to MEV.

This piece will explore a potential solution to mitigate the harmful effects of MEV on Ethereum.

Proposer-builder separation (PBS)

There are ongoing efforts to address the negative impacts of MEV on the decentralization and security of the Ethereum network after the transition to proof-of-stake.

A proposed solutions for this problem is Proposer-Builder Separation (PBS).

Proposer-builder separation (PBS) is a solution that aims to reduce the negative impacts of MEV on the Ethereum network, particularly at the consensus layer. It does this by separating the responsibilities of one entity being the block proposers and block producers and instead introduces a new class of specialized entities called block builders.

What are Block Proposers?

A block proposer is responsible for constructing a block of transactions and presenting it to the network for inclusion in the blockchain. They have the power to decide which transactions are included or excluded based on the priority fee of transactions in the Ethereum mempool.

Block proposers are randomly chosen among validators in each slot and then create the block and distribute it to other nodes. Additionally, a group of validators is randomly selected as a committee to vote on the validity of the proposed block.

What are Block Builders?

A block builder is responsible for generating an “exec block body,” which is a list of transactions, and submitting it along with a bid to the Ethereum network. The block proposer then selects the exec block body with the highest bid to be included in the next block.

How does PBS change MEV extraction?

Under PBS, validators are still responsible for proposing and voting on blocks, but block builders are responsible for ordering transactions and building blocks. The main feature of PBS is the separation of the rules that govern these two roles, which is intended to reduce the risks of validator centralization and increase the fairness of the network.

Under the proposer-builder separation (PBS) model, block builders create bundles of transactions and place bids for their inclusion in a Beacon Chain block (as the “execution payload”). The validator selected to propose the next block then reviews the different bids and chooses the bundle with the highest fee. This process creates an auction market, where builders negotiate with validators for the sale of blockspace.

The validator (block proposer) earns a fee for including the winning bundle in the block, and the block builder earns the value of the transactions included in the bundle.

PBS would separate the block construction process from the block proposal process. Builders would be selected by the highest fee they’re willing to pay, and proposers would simply select the exec header with the highest fee. PBS essentially creates a market-based system for allocating blockspace, which is intended to reduce the risks of validator centralization and increase the fairness of the Ethereum network.

In Conclusion

MEV is a controversial subject as it can have both positive and negative impacts. Initially, its implementation was meant to incentivize validators and give Ethereum users the option to prioritize their transactions by paying fees. However, its structure has also made it a target for malicious actors looking to exploit other users.

That is why to tackle the problem with MEV at the consensus layer of Ethereum, Proposer-Builder separation (PBS) has been proposed to divide the proposing of blocks and the building of blocks and create a market-based system that reduces centralization and create a more fairer Ethereum network.

It is important to remember that PBS does not inherently solve all of the problems that come with MEV, and it is not a perfect solution. However, as long as MEV is here to stay, PBS represents a step towards a more decentralized Ethereum network originally envisioned by the community.

Let me know what you think about PBS. Thanks!

https://medium.com/coinsbench/how-proposer-builder-separation-aims-to-solve-mev-in-ethereum-70092ce1e8f