Who Wins Ethereum Block Building Auctions and Why?

TL;DR

This paper analyzes Ethereum block builder market dynamics, revealing how market share and access to exclusive order flow influence profitability and centralization, with implications for maintaining Ethereum's decentralization and censorship resistance.

Contribution

It provides the first comprehensive empirical analysis of MEV-Boost auction features affecting builder success and market concentration in Ethereum.

Findings

Market share correlates with order flow diversity.

Profitability is linked to access to exclusive order flow.

Features like exclusive signals and non-atomic arbitrages strongly influence builder success.

Abstract

The MEV-Boost block auction contributes approximately 90% of all Ethereum blocks. Between October 2023 and March 2024, only three builders produced 80% of them, highlighting the concentration of power within the block builder market. To foster competition and preserve Ethereum's decentralized ethos and censorship-resistance properties, understanding the dominant players' competitive edges is essential. In this paper, we identify features that play a significant role in builders' ability to win blocks and earn profits by conducting a comprehensive empirical analysis of MEV-Boost auctions over a six-month period. We reveal that block market share positively correlates with order flow diversity, while profitability correlates with access to order flow from Exclusive Providers, such as integrated searchers and external providers with exclusivity deals. Additionally, we show a positive correlation between market share and profit margin among the top ten builders, with features such as exclusive signal, non-atomic arbitrages, and Telegram bot flow strongly correlating with both metrics. This highlights a "chicken-and-egg" problem where builders need differentiated order flow to profit, but only receive such flow if they have a significant market share. Overall, this work provides an in-depth analysis of the key features driving the builder market towards centralization and offers valuable insights for designing further iterations of Ethereum block auctions, preserving Ethereum's censorship resistance properties.