Proposer Builder Separation Problem in Ethereum

Proposer-Builder Separation Problem

1. University of Lausanne
Proposer-Builder
SeparationProblem
Rasoul Ramezanian
May 27, 2024

2. 1What is and Why PBS?2Discussing three Mechanisms for PBS
2.1 MEV-Boost Mechanism
2.2 Single Slot Mechanism
2.3 Two-Slot Mechanism
3Comparing Mechanisms4Designing a New Mechanism, An Initial Approach5Axioms for PBS6Further Improvement for PBS
Contents
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3. WhatisandWhyPBS?

4. Constructing a block before DeFi emergence
Before, forming a protableblock was an easy task.
What is and Why PBS?
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5. The emergence of DeFi led to the discovery of MEV opportunities.
MEV Opportunity
MEV Opportunity is the act of
bundle of orders of transactions.
Three main MEV opportunity resources are:
1Arbitragebetween DEX and CEX2Sandwich attackto traders of DEXs3Liquidationof Lending/Borrowing Platforms
MEV Opportunity Searchers
Searchersare agents who
searchfor MEV opportunities,
formbundles of transactions, and
payfees to miners/validators to include their bundles in a block
MEV Opportunity
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6. Constructing a block after DeFi emergence
After the emergence of DeFi, forming a high-value block becomes a
complicated
What is and Why PBS?
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7. Outsourcing
So Validators decided to outsource the block forming activity byselling
theirrightstobuildblocks.
What is and Why PBS?
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8. Proposer-Builder Separation
The role of a validator is separated into two parts:
block proposer BlockBuildingRight(BBR) and just
propose the block)
block builder BBRs and builds blocks)
PBS mechanisms consist of two sub-mechanisms:
1price discovery2Swapping
What is PBS?
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9. In the next section, we discuss three mechanisms for PBS, where
-all of them are the same in, and
-they dier in
Four possible outcomes of swapping:
Three Mechanisms for PBS
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10. MechanismsforPBS

11. Three well-known mechanisms for PBS are
1MEV-Boost Mechanism (an out of protocol design)2Single-Slot Mechanism (an in-protocol design)3Two-Slot Mechanism (an in-protocol design)
Three Mechanisms for PBS
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12. MEV-BoostMechanism

13. MEV-Boost mechanism, proposed by Flashbot, is a swapping mechanism via
a broker/trusted third party.
MEV-Boost Mechanism
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14. MEV-Boost Mechanism
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15. 1Block builders(using bundles received from searchers, along with their
private order ow, and transactions from the public mempool) construct
the most protable blocks and send it to a (some) rely(s).
2Relaysare responsible for 1-validating the content of the blocks,
2-
3-
4-
3Proposersinstall the MEV-Boost client and connect to relays to receive
bids form.
MEV-Boost Mechanism
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16. Trusts in Relay
Trust to not reveal:The block builder needs to trust the relay not to
reveal the contents of the block.
Trust in validation and bid inclusion:The proposer has to trust the
relay to verify that the block is valid, and includes the transaction of
sending bid to proposer's address.
Trust in Broadcasting:The proposer and the builder need to trust the
relay to assemble the full block and broadcast it.
Trust in identifying the head:The proposer has to trust the builder to
correctly identify the head of the blockchain and avoid creating a fork,
thus preventing the waste of the slot.
MEV-Boost Mechanism
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17. If the builder fails to correctly identify the head of the longest chain, the
result is that no swapping occurs, both the slot and the contents of the block
are wasted.
Wrong Fork
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18. Howtoeliminate
thepresenceofthe
relay?
Solution1: Replacing
Relaywithanattester
committee

19. SingleSlotMechanism

20. Replacing Relay with an attester committee
Source: ethresear.ch
Single Slot Mechanism
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21. Replacing Relay with an attester committee.
1Every buildererasure-codeshis payload inton=256 chunks where
n3=85 cuuncks is needed to recover the whole of the contents. Then
he sends thei'th chunk to thei'th attestersecretly.
2Each attester checks the received chunk for.3If the chunk is valid, the attester will vote
payload and broadcast it to the Auction subnet.
4The proposer accepts the
leastt=2n3=170 votes/signatures.
5After the proposer sends their acceptance, the committeereveal the
chunks, and the network reconstructs missing chunks if needed
6Attesters of the network vote on the assembled block revealed by the
committee.
Single Slot Mechanism
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22. Possible malicious behaviors
What if the proposer signs more than one header and cause that attester
committee reveals more than one payload.
Single Slot Mechanism
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23. Howtoeliminate
thepresenceofthe
relay?
Solution2: Doing
swappingintwoslots

24. Two-SlotMechanism

25. The Two-Slot PBS occurs over two slots. In the rst slot, the swapping
between BBR and the bid occurs, and in the second slot, the block
constructed by the block builder is appended to the blockchain.
Source: ethresear.ch
Two-Slot Mechanism
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26. First Slot:Swapping BBR with the wining Bid
1Every block builder publishes a
header=(hash of their payload,,)
2The header with the highest bid is declared the winner and proposer
include it in the beacon block of the rst slot.
3One committee (ofNcommittees) attests to the beacon block
Second Slot:Appending the constructed block to the blockchain
1The winning builder publishes an intermediate block, consisting of the
payload and as many attestations on the beacon block (the block published
in the rst slot) as they can nd.
2the remainingN1 committees attest to the intermediate block.
Two-Slot Mechanism
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27. Comparing
Mechanisms

28. 1MEV-Boost is an
Two-Slot are
2MEV-Boost relies on the relay as a, whereas we do
not have any trusted third party in Single-Slot and Two-Slot
mechanisms.
3MEV-Boost and Single-Slot occur within one slot, while the Two-Slot
mechanism
4MEV-Boost and Single-Slot are, whereas Two-Slot is
pre-payment.
5Single-Slot requires more
MEV-Boost.
Comparing Mechanisms
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29. MEV-Boost is considered
builder can transfer the bid to the proposer's address
values to their own address.
So, it is possible that a block builder does
address to pay the bid immediately. They may consider an order in which the
payment to the proposer occurs at the end of the block, after they have
already received fees from searchers and users, thus accumulating enough
resources to cover the bid.
Post- Payment
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30. Howtoeliminate
thepresenceofthe
relay?
Solution3: Sellingslots
andReplacingRelay
withaSmartContract

31. DesigningaNew
Mechanism,
AnInitialApproach

32. We construct a smart contract to execute our PBS mechanism.Auction-Future-Slot
1Every proposerjdepositsan amount ofcj=cupfront in to smart
contract to be eligible to sell their slots in this market.
2Every Proposerjwho wants to sell theirfuture slotsjsubmits it to the
smart contract.
3Every Builderisubmits their bids for available slots. For example,
bidi¹sjºis the bid of builderiforslotsjof proposerj.
4Every proposer
An Initial Approach
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33. 4Every builderiwhose bid has been accepted by a proposerjdeposits
bidi¹sjºinto the smart contract.
5During slotsj, builderisends his j.6After the timeout of slotsj, if proposerjhas proposed the
payload ias a block, then the smart contract sends
¹bidi¹sjº ¸vºto proposerj.
7If not, the smart contract returns¹bidi¹sjº dºto builderiand c.
An Initial Approach
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34. Auction-Future-Slot Mechanism
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35. Let's refer to the value of the block constructed by builderiasvi.
Theorem
If viŸbidi¹sjº ¸c then the proposer has no incentive to deviate from the
rules of the mechanism (He would not steal the payload).
Auction-Future-Slot Mechanism
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36. AxiomsforPBS

37. We need to
that whether they satisfy following axioms.
Axioms
A1.MEV Domination
A2.Incentive Compatibility
A3.Censorship Proofness
A4.Decentralised Domination
A5.Pareto Eciency
Axioms for PBS
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38. Definition
We say a mechanism`dominates in value extraction q
whenever the sum of the revenue of proposers in`exceeds that of proposers
inq. In other words, more MEV is extracted in`.
Theorem
MEV-boost mechanism
mechanism.
Proof.
Sketch of Proof:Themain ideaof the proof is that, since Two-Slot, in contrast to
MEV-Boost, requires pre-payment, there could be some sophisticated builders who do not have
enough funds in their address for pre-paying bids in the Two-Slot mechanism. However, they
can still work in MEV-Boost, which leads to the conclusion that the sum of the revenue of
proposers in MEV-Boost exceeds that of proposers in the Two-Slot mechanism.
MEV Domination
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39. Incentive Compatibility
A mechanism isincentive-compatiblewhen no participant has an incentive
to
Prove or Disprove
We need to formally study incentive-compatibility of MEV-Boost,
Single-Slot and Two-Slot mechanisms.
Incentive Compatibility
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40. Incentives of Agents
There are six dierent types of agents who participate in PBS mechanisms,
and we need to formally model their
incentives in each mechanism.
Agents:
Users Searchers Builders
Relays Attesters Proposers
Example
MEV-Boost: What are the incentives of relays to behave honestly?
What if the relay colludes with the validator of the next slot and doesn't
show (censor) the best bid to the current proposer?
Incentive Compatibility
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41. Question:
We need to formally study and answer following questions:
1Which one is more censorship-resistant:
"POS or POS with PBS"?
2In PBS mechanisms, does empowering proposers with an
lead to more censorship resistance?
Censorship Proofness
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42. Let`be a PBS mechanism. ByB`, we refer to the set of individuals who
can be eligible to participate as builders in`.
Decentralized Domination
Given two mechanism`andq, we say`decentralized dominatesq
wheneverBqB`.
Question
Which one is more decentralized MEV-Boost, Single-Slot, Two-Slot?
Decentralized Domination
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43. FurtherImprovement
forPBS

44. Inclusion List
Decentralization of Builder
Trust between Builder and searcher
Selling only a part of a block, not the whole space of the block.
Selling the right to a slot, rather than a specic block to be published at
that slot.
Further Improvement for PBS
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45. Questions?
Mechanism design involves creating mechanisms for specic purposes and then
formally verifying their properties.
Thank you!
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