How PBS works and why it's important to Ethereum
Recap: hard-to-discover MEV
- Internal Uniswap arbitrage (A -> B, B -> C, C -> A)
- Uniswap vs Sushiswap arbitrage (A -> B on UNI, B -> A on SUSHI)
- Uniswap vs offchain exchange arbitrage (A -> B on UNI, B -> A on Binance)
- Liquidations (eg. of MakerDAO CDPs)
- NFT purchases
Why is hard-to-discover MEV a problem?
- MEV discovery requires specialized software that needs to be constantly updated
- Only specialized actors can effectively optimize MEV revenue
- Large pools can hire them -> creates pressure for stakers to join large pools
Proposer / builder separation
- Goal: separate out the task with strong centralizing pressures (selection of block contents) from the rest of block validation
- Idea: block proposers sell the right to decide the contents of their block to the highest bidder, on-chain
Current proposed design
Security properties of the current design
- Payment to the proposer is unconditional (so proposers do not need to trust builders)
- Builder has to reveal on time. If they do not, they pay their bid to the proposer but do not collect fees from the block
- No risk of "MEV stealing" in the normal case: builder only reveals once block that confirms winning bid is "safe"
- Censorship of builder requires 51% attack on committee
Challenges with the current design
- Involves multiple steps per slot, requiring increased block times or stronger latency assumptions
- If one builder consistently wins, can they censor?
How PBS works and why it's important to Ethereum
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