From Competition to Centralization: The Oligopoly in Ethereum Block Building Auctions

TL;DR

This paper analyzes how latency and MEV access advantages lead to centralization in Ethereum's block building auctions, highlighting risks to decentralization and efficiency.

Contribution

It provides an empirical game-theoretic analysis showing how advantages in latency and MEV access enable dominant builders to consolidate power in Ethereum.

Findings

Dominant builders leverage latency and MEV advantages.

Centralization increases due to strategic bidding.

Auction efficiency decreases with builder consolidation.

Abstract

Block production on the Ethereum blockchain has adopted an auction-based mechanism known as Proposer--Builder Separation (PBS), where validators outsource block creation to builders competing in MEV--Boost auctions for Maximal Extractable Value (MEV) rewards. We employ empirical game-theoretic analysis based on simulations to examine how advantages in latency and MEV access shape builder strategic bidding and auction outcomes. We find that a small set of dominant builders leverage these advantages, consolidating power, reducing auction efficiency, and heightening centralization. Our results underscore the need for fair MEV distribution and sustained efforts to promote decentralization in Ethereum's block building market.