Builder

Definition: The Builder in Proposer-Builder Separation

A Builder is a highly specialized, off-chain entity responsible for constructing the most profitable block body, known as an execution payload, in a Proposer-Builder Separation (PBS) architecture. This role separates the complex, resource-intensive task of transaction ordering and block creation from the consensus-critical role of the Validator, who acts as the Proposer. By focusing exclusively on optimizing block contents, Builders create a competitive marketplace for blockspace that allows Proposers to simply select the most valuable block header without needing to process the transactions themselves, thereby increasing network efficiency and democratizing participation in consensus.

How Builders Operate in the MEV Supply Chain

A Builder's operation is a continuous, high-frequency cycle of data aggregation, simulation, and bidding. Their primary goal is to assemble an execution payload that maximizes revenue from two sources: standard transaction priority fees and, more significantly, Maximal Extractable Value (MEV). This process unfolds through a distinct supply chain involving searchers, relays, and proposers.

The Block Construction Workflow

• Transaction & Bundle Aggregation: Builders monitor public mempools for pending transactions. Critically, they also receive private order flow in the form of "bundles" from searchers. These bundles are atomic groups of transactions, often designed to execute specific MEV strategies, and are sent directly to Builders to avoid front-running in the public mempool.
• Simulation & Optimization: Upon receiving transactions and bundles, the Builder's sophisticated software runs millions of simulations. It models different transaction orderings to find the most profitable combination, evaluating potential arbitrage, liquidations, and other MEV opportunities while packing in as many high-fee transactions as possible.
• Execution Payload Construction: Once the optimal arrangement is found, the Builder constructs a complete execution payload. This is the body of the block, containing the ordered list of transactions, state root changes, and proofs, all processed using an Execution Layer Client.
• Bidding & Submission to Relays: The Builder calculates the total value of its constructed block. It then formulates a bid—the amount it will pay the Proposer for including its block. The Builder sends the full payload and its bid to one or more trusted intermediaries known as Relays. Through the MEV-Boost software, the Proposer sees bids from multiple relays but not the block contents, preventing them from stealing the MEV opportunity.

The Builder's Critical Role in MEV Optimization

Builders are the central nexus for MEV extraction on networks like Ethereum. Their entire business model is predicated on being more effective at identifying and capturing value than any other network participant, including the Proposers themselves. They achieve this through several specialized strategies.

Value Extraction Strategies

• Sophisticated Transaction Ordering: Unlike a default validator client that may order transactions by gas price, a Builder's algorithm solves a complex optimization problem. It strategically places MEV bundles (e.g., for DEX arbitrage or liquidations) alongside high-fee transactions to maximize total block value.
• Private Order Flow: Top-tier Builders establish reputations for reliability and execution, attracting exclusive order flow from the most profitable searchers. This private channel gives them access to high-value MEV opportunities that are not visible in the public mempool, creating a significant competitive advantage.
• Gas & State Efficiency: Competitive Builders invest heavily in infrastructure that can simulate and build blocks at extremely low latencies. They also employ advanced techniques to pack transactions more efficiently, increasing the overall gas used within a block and thus the total fees collected. This competition ultimately translates into higher bids and greater rewards for validators and stakers.

Impact on Ethereum's Decentralization, Censorship Resistance, and Efficiency

The introduction of the Builder role has profound and dual-sided impacts on the network's core properties. While PBS and Builders enhance certain aspects of network performance, they also introduce new centralization vectors and risks that must be managed.

Centralization and Censorship Risks

The primary concern is the centralizing effect of the Builder market. The role demands significant capital investment, advanced software engineering, and low-latency network infrastructure, creating high barriers to entry. Consequently, a small number of sophisticated Builders produce a majority of all blocks on the network. This concentration of power means that if these few actors were to collude or be coerced, they could potentially censor specific transactions, addresses, or applications at a network-wide level. Relays act as a partial countermeasure by enforcing certain inclusion rules, but the risk remains at the Builder level.

Gains in Efficiency

Conversely, this specialization dramatically improves network efficiency. By offloading the burden of block construction, validators can operate on less powerful hardware, lowering the barrier to entry for staking and improving validator decentralization. Furthermore, the intense competition among Builders ensures that blockspace is used with maximum efficiency. This can lead to higher overall throughput and a more stable fee market, as fee spikes are more effectively captured as MEV and passed on to validators through bids.

Challenges, Trade-offs, and Future Directions for Builders

Operating as a Builder is a formidable challenge characterized by intense competition, high operational costs, and an evolving technological and regulatory landscape. The future of block building aims to address the centralization inherent in the current model.Current Challenges

• Economic Viability: The margins for Builders can be thin. They operate in a hyper-competitive, low-latency environment where milliseconds matter. Success requires constant investment in algorithmic improvements and infrastructure to out-bid competitors.
• Regulatory Scrutiny: As MEV becomes better understood, regulators are paying closer attention to its implications, particularly concerning transaction censorship and compliance with sanctions (e.g., from OFAC). This places Builders in a precarious position between network neutrality and real-world legal obligations.

The Road to Enshrined PBS

The current MEV-Boost ecosystem is widely considered a transitional phase. The long-term vision for Ethereum is to implement "enshrined" Proposer-Builder Separation (ePBS) directly into the core protocol. This would eliminate the need for trusted external relays, further harden the network against censorship, and potentially introduce mechanisms like execution tickets to democratize the submission of block components, mitigating some of the centralization pressures present in today's Builder market.

Common Misconceptions About Builders

The specialized nature of the Builder role often leads to misunderstandings about their function and position within the network stack.

• Builders are just developers: A Builder is not a general application developer. It is a highly specialized infrastructure role focused solely on the economic optimization and construction of blockchain blocks.
• Builders and Proposers are the same: In PBS, these are distinct and separate functions. The Builder handles the complex "how" of block construction, while the Proposer handles the simple but secure "what" of block selection.
• Builders are inherently malicious: A Builder's function is economically motivated, not inherently good or bad. They are profit-maximizers. While they may include blocks containing user-negative MEV like sandwich attacks, they are typically including bundles created by independent searchers, not creating the strategies themselves.

Frequently Asked Questions

What is the difference between a Builder and a Proposer?

Their responsibilities are separate and sequential. A Builder constructs the full, ordered contents of a block (the execution payload) to maximize its value. A Proposer (a validator whose turn it is) does not see these contents; it only sees bids from multiple Builders. The Proposer's sole job is to select the header of the block with the highest bid, sign it, and broadcast it to the network to extend the chain.

How do Builders make money?

Builders profit from the spread between the total value they create in a block and the amount they bid to the Proposer. This total value is a combination of all transaction priority fees plus all the MEV they can extract through strategic transaction ordering (e.g., from arbitrage and liquidation bundles). They keep the difference between this total value and the winning bid they pay out, rewarding them for their optimization efforts.

Can Builders censor transactions?

Yes, a Builder has the technical authority to include or exclude any transaction when constructing a block. In practice, widespread censorship is discouraged by competition; if one Builder censors a high-fee transaction, another Builder can include it to create a more valuable block and win the bid. However, the potential for targeted censorship by a small, dominant group of Builders remains a significant network-level concern.

Is PBS a permanent solution for block building?

The current implementation of PBS via MEV-Boost is considered an effective interim solution that was rolled out to address the urgent issue of MEV centralization post-Merge. The long-term roadmap for Ethereum includes enshrined PBS (ePBS), which will integrate the Builder market directly into the protocol. This aims to remove trusted intermediaries like relays and create a more decentralized, secure, and censorship-resistant mechanism for block production.

Key Takeaways for Technical Decision-Makers

• Role Specialization: Builders are specialized agents that handle the complex task of block construction, allowing Proposers (validators) to focus solely on consensus.
• MEV Optimization Engine: The primary function and competitive advantage of a Builder is the sophisticated optimization of transaction ordering to maximize MEV and fee revenue.
• Centralization Vector: While efficient, the Builder role introduces a significant centralization risk into the transaction supply chain, as only a few entities have the resources to compete.
• Efficiency & Democratization Trade-off: Builders create more efficient blocks and lower the hardware requirements for validators, but this comes at the cost of the aforementioned centralization.
• Evolving Architecture: The current Builder market operating through MEV-Boost is a precursor to a future in-protocol solution known as enshrined PBS (ePBS).