Proposer-Builder Separation (PBS) on Ethereum, Explained

Proposer-Builder Separation (PBS) is a structural design in the Ethereum network that splits the responsibilities of constructing transaction blocks and submitting those blocks to the blockchain. By separating the resource-intensive task of transaction ordering from the final act of block proposal, PBS aims to prevent the centralizing forces of Maximal Extractable Value (MEV) from pushing out solo network validators.

The MEV Problem and Validator Centralization

Before the implementation of PBS concepts, a single network validator handled both the selection of transactions from the public memory pool and the proposal of the resulting block. This dual role created a structural vulnerability related to MEV, which is the maximum value a participant can extract from block production by reordering, including, or excluding transactions.

Extracting MEV requires sophisticated algorithms and vast computational resources to identify arbitrage opportunities, liquidations, and optimal transaction ordering. If validators build their own blocks, large institutional staking pools with dedicated engineering teams can extract significantly more MEV than individual, independent validators. Over time, this dynamic mathematically favors large entities, as they can offer higher yields to delegators, eventually leading to network centralization. PBS solves this by allowing any validator, regardless of size, to access the same highly optimized, profitable blocks created by specialized entities.

How MEV-Boost and Relays Work

Ethereum currently relies on an out-of-protocol implementation of PBS known as MEV-Boost, developed by the research organization Flashbots. Under this model, three distinct actors replace the traditional solitary validator role.

First, searchers scan the network for profitable transaction opportunities. Second, block builders aggregate these searcher transactions, along with standard user transactions, into complete, optimized payloads. Finally, the block proposer (the validator selected by the network for that specific slot) selects the most profitable payload to add to the blockchain.

Because builders and proposers do not inherently trust each other—a proposer could steal a builder's MEV strategy, or a builder could submit an invalid block—a trusted intermediary is required. These intermediaries are known as relays. Relays verify the builder's block, hide the transaction contents from the proposer until the proposer cryptographically commits to proposing it, and then reveal the block data.

The Economics of Block Building

To understand how value flows through the PBS supply chain, consider a simplified numeric example. Assume a searcher identifies an arbitrage opportunity worth 100 $USDC between two decentralized exchanges.

To execute this trade before anyone else, the searcher must incentivize a block builder to include their transaction. The searcher submits the transaction and bids 90 USDC directly to the builder, retaining 10 USDC as profit.

Multiple block builders are simultaneously constructing blocks and competing to win the proposer's favor. A builder aggregates this searcher's transaction along with others, creating a total block value of 0.05 $ETH in fees. To ensure the proposer selects their block over competing builders, the builder bids 0.048 ETH to the proposer, keeping 0.002 ETH as their margin.

The validator, acting as the proposer, simply runs the MEV-Boost software, automatically selects the highest bid (0.048 ETH), and proposes the block. Through this mechanism, the complex extraction of MEV is outsourced, but the bulk of the economic value is passed down to the validator network.

Censorship Trade-offs

The reliance on relays introduces a new centralization vector: censorship. Because relays sit between builders and proposers, they can dictate which blocks reach the network.

Following sanctions by the US Office of Foreign Assets Control (OFAC) against specific smart contracts, several major relays chose to filter transactions interacting with those sanctioned addresses. If a significant percentage of relays enforce these filters, affected transactions experience delays, taking longer to be included in the blockchain. While the underlying Ethereum protocol does not mandate this censorship, the bottleneck created by out-of-protocol relays forces the network to grapple with compliance requirements imposed on centralized infrastructure providers.

Moving Toward Enshrined PBS (ePBS)

To address the vulnerabilities of the current relay system, Ethereum developers are researching Enshrined PBS (ePBS). This upgrade would build the separation of proposers and builders directly into the Ethereum consensus protocol, eliminating the need for trusted, third-party relays.

Under ePBS, the cryptographic commitment and reveal process handled by relays would be managed by the blockchain's consensus mechanisms. This transition aims to reduce censorship risks and remove the technical fragility of relying on external servers. As Ethereum core developers refine the consensus specifications, implementing ePBS remains a complex, multi-year engineering challenge.

Common misconceptions

• PBS eliminates MEV: PBS does not remove MEV from the network. Instead, it democratizes access to MEV profits, ensuring small validators can earn similar proportional rewards to large staking pools.
• Relays build transaction blocks: Relays do not assemble transactions. They act strictly as escrow agents and validators of the blocks constructed by specialized builders.
• MEV-Boost is part of the core Ethereum protocol: MEV-Boost is an optional, out-of-protocol software sidecar. Validators are not required to run it, though the economic incentives heavily encourage them to do so.

What to watch

The transition from MEV-Boost to ePBS is one of the most critical long-term upgrades for the Ethereum network. Market participants should monitor the percentage of blocks built by OFAC-compliant relays, as this metric directly reflects the network's censorship resistance. Additionally, alternative designs like execution tickets—which propose selling the right to build blocks in a separate market—are actively debated among researchers and could alter the trajectory of how PBS is ultimately enshrined.