Becoming Immutable: How Ethereum is Made

TL;DR

This paper investigates Ethereum's transaction inclusion process by analyzing non-winning blocks, revealing how routing and block composition impact transaction delays and execution quality.

Contribution

It introduces a novel dataset of non-winning Ethereum blocks and demonstrates their influence on transaction delays and market outcomes.

Findings

21% of user transactions are delayed due to non-inclusion in winning blocks.

Execution probability and prices vary across proposed blocks for the same transaction.

Routing and block composition significantly affect market quality and transaction outcomes.

Abstract

Blockchain's economic value lies in enabling financial and economic transactions without relying on trusted, centralized intermediaries. In practice, however, transactions pass through a fragmented chain of intermediaries before being included on-chain. Because standard blockchain data reveal only the winning block, this process is largely unobservable. We address this limitation by constructing a novel dataset of 15,097 non-winning Ethereum blocks, that is, blocks proposed but not selected for inclusion. We show that 21% of user transactions are delayed: they appear in candidate blocks but not in the winning block, implying that fragmented routing materially affects inclusion time. We further show that execution quality varies substantially across candidate blocks: for the same swap, both execution probability and execution price differ across proposed blocks. To study these differences, we examine competition between two arbitrage bots trading between decentralized and centralized exchanges. We find that, conditional on inclusion in a block that also contains transactions from these bots, user swaps in the same (opposite) direction are less likely (more likely) to execute and receive worse (better) prices. These results show that routing and block composition are central determinants of execution quality and market quality in on-chain markets.