MEV Space #1 Recap: Breaking the Ethereum Builder Duopoly

From Technical Competition to Order Flow Wars

Dec 17, 2024

The MEV landscape is experiencing unprecedented centralization, with just two builders controlling 95.7% of MEV-Boost blocks. On December 3rd, we gathered eight brilliant minds from academia, infrastructure providers, and builders to explore this crisis and potential solutions in the first of the Twitter Space series - MEV Space.

MEV Space brings together the sharpest minds in crypto to dissect the evolving MEV landscape.

Our first MEV Space wasn't just another discussion about centralization—it was a deep dive into the mechanics of how we got here and, more importantly, where we might go next. Our speakers examined everything from auction dynamics to order flow economics through the lens of institutional design and incentive mechanisms.

The conversation revealed fascinating insights, from counter-intuitive research findings about auction behavior to radical proposals for restructuring the entire builder marketplace. A rich tapestry of perspectives emerged on addressing one of Ethereum's most pressing challenges.

Let's recap the key insights from our speakers:

During our first MEV Space, Prof. Fan Zhang shared his counter-intuitive finding from his paper Decentralization of Ethereum’s Builder Market

While auctions appear highly competitive, with winners outbidding others, they only need to bid slightly above the second-highest bid due to drastically different true values.

Another brilliant researcher, Burak Öz suggested:

While single-source order flow can be profitable, only diverse AND exclusive order flow creates sustainable market dominance - and much of this value isn't even visible in on-chain metrics.

You can find more from his paper Who Wins Ethereum Block Building Auctions and Why?

Talking about the builder market, the COO of bloXroute, Eyal Markov illuminated the trend:

The builder market transformed from a technical competition for better blocks into a biz development race for exclusive order flow deals - creating a system where builders and transaction originators are incentivized towards centralization.

Stephen Levin is the Head of Operations of Flashbots; he pointed out that

We're at a unique moment where new technology finally enables us to reshape market incentives - moving from a system that naturally centralizes to one that benefits the entire ecosystem.

CEO of Sorella Labs, Ludwig, has a different solution for the current crisis:

The solution isn't to fix builder centralization directly but to make it less profitable by having apps capture and redistribute MEV. While this might centralize apps instead, that's preferable because it's demand-driven and doesn't threaten blockchain neutrality.

Murat Akdeniz is the Chief MEV Punk of Primev. He asked a key question:

Why don't we do more to democratize order flow? Protocol should actively reward decentralized order flow through gas incentives, while maintaining balance between searcher-heavy builders and neutral block builders. Current solutions favor order flow generators at the expense of neutral builders - we need mechanisms supporting both for a healthy ecosystem.

Auston Sterling shared the PoV from Aestus Relay:

While relays aren't the primary problem, they can support decentralization by: 1.Maintaining strict neutrality 2.Enabling validator preferences beyond profit 3.Treating all builders equally The key is staying independent while facilitating validator influence on the builder market.

Interested in the full Twitter Space? Check it out via our YouTube channel to understand more about these highlights below worth your attention:

Eyal Markov on PBS Problems:

The biggest problem we have today with PBS is PBS itself. If we would actually not do PBS and each validator created their own block, we would not have this issue at all.

Stephen Levin on Future of Building:

In the medium term, there won't necessarily be a block builder entity. It's going to be a different system where people running builder tech today - searchers, order flow providers, apps - are working in a more collaborative fashion.

Burak Öz on Inevitable Centralization:

If you want to have a sybil-proof incentive compatible mechanism with private values, then it's inevitable that there will be centralization. The one who has access to the most private value will always win the auction.

Murat Akdeniz on Randomization Solution & Protocol Incentives:

What if we had some element of randomization for order flow routing? Like three builder net nodes and by some random factor, only two of them would get some order flow. There should have been some sort of decentralization factor in the function that outputs value. Today, it's pure economic value, but clearly, the market cares about more than just pure economics.

Ludwig on Value Extraction:

In an efficient market, like in efficient DeFi, there wouldn't be that much value leak to these builders. Why would there be so many networks?

Prof. Fan Zhang on Encrypted Mempool and BuilderNet:

I am a big fan of encrypted mempool, although it's facing a lot of practical challenges like how do you track fees and so on. But if the peer-to-peer network was designed to have more privacy guarantees, a lot of the extractive behaviors can be prevented from the very beginning. I'm also a big fan of BuilderNet, and I actually see BuilderNet to have more potential to get deployed because encrypted mempool seems to have a lot of other challenges.

Auston Sterling on Validator Preferences and Relay Independence:

Relays can allow for greater expression of validator preferences beyond just profit maximization. If the proposer has monopoly power of their block, relays can better implement systems to allow validators to express preferences. All the work in keeping relays independent, not making deals with either side, means these blocks from decentralized builders will be treated the same as blocks from any other builders. There'll be no prioritization going on there.

And stay tuned for this Thursday's MEV Space about Searcher-builder integration!

Click this link or open https://bit.ly/hfdefi to download the free ebook Head First DeFi, Decoding the DNA of Crypto Transactions & Strategies.

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