Enhanced Proposer-Builder Separation (ePBS)

• Enhanced Proposer-Builder Separation (ePBS) is a protocol that restructures Ethereum block production via on-chain auctions between proposers and builders to ensure cryptoeconomic accountability.
• It deploys a two-layer auction mechanism that redistributes MEV rewards, reduces computational overhead, and reinforces validator decentralization.
• The protocol incorporates safeguards like MEV smoothing and burn auctions, though it also faces challenges such as builder centralization and liveness risks.

Enhanced Proposer-Builder Separation (ePBS) is an Ethereum consensus protocol upgrade (EIP-7732, the Glamsterdam release) that enshrines on-chain Proposer-Builder Separation, superseding off-chain PBS relay architectures. ePBS establishes protocol-native blockspace auctions, cryptoeconomic accountability, and mechanisms for MEV redistribution and liveness, with significant implications for builder centralization, validator decentralization, market efficiency, and protocol-level robustness.

1. Architectural Principles of ePBS

Enhanced Proposer-Builder Separation restructures the block production pipeline into an explicit sequence:

• In each consensus slot, staked validators (“proposers”) conduct an on-chain auction among “builders” for the right to assemble and publish execution payloads.
• Builders submit signed “BuilderBid” transactions with slot, parent hash, bid value, and staking identity; proposers select the highest bid, gossip a “SelectionMsg,” and await the builder’s execution payload via “ExecutionPayloadReveal.”
• The protocol replaces Flashbots’ MEV-Boost relays with on-chain, permissionless auction processes, eliminating trusted intermediaries and supporting “ultralight” validator clients (header-only block propagation).

This architecture provides cryptoeconomic accountability (slashing for late/invalid payloads via the Payload Timeliness Committee), reduces validator compute and networking overhead, and enables direct MEV management primitives such as smoothing and burning (Koegler, 22 Jun 2025). Slot-winning proposers earn rewards from the protocol base plus accepted builder bids; all priority fees are internalized via builder competition.

2. Economic and Game-Theoretic Analysis

The Order Flow Auction (OFA) in ePBS is modeled as a multiplayer noncooperative game in which M builders and N validators interact across two auction layers:

• Each builder selects a bid $h_i \in (0,\infty)$ distributed across μ·$h_i$ as rebates to users and $(1-\mu)·h_i$ offered to proposers.
• Builder i’s utility:

$$\pi_i(h_i|h_{-i}) = \bar{f}_i \frac{h_i}{H} + \bar{v}_i \left(\frac{h_i}{H}\right)^2 - \frac{h_i^2}{H},$$

where $H = \sum_j h_j$ and $\bar{f}_i$, $\bar{v}_i$ are expected MEV values, locally and from order-flow rights, respectively.

In the two-builder case (M=2), the equilibrium bid ratio $\lambda^* = h_2^*/h_1^*$ resolves uniquely as the positive real root of a quartic polynomial, with explicit solutions via Ferrari’s method. Strict concavity in the best-response functions ensures Nash equilibrium existence and uniqueness. Empirically, builders with competitive MEV capacity bid less than proportional to their MEV, securing amplified net profits and driving builder centralization (Ma et al., 17 Feb 2025).

Validator (proposer) stake shares evolve as a martingale:

$$E[\omega_{j,t+1}\mid \mathcal{F}_t] = \omega_{j,t},$$

guaranteeing decentralization in the proposer pool by preventing systematic drift in stake distribution, in contrast to builder concentration outcomes.

3. Protocol-Level Auction Mechanisms

ePBS’s workflow emphasizes on-chain commitment auctions, payload revelations, and robust finality:

• Builders submit “BuilderBid” structures, signed and gossiped across the consensus network.
• Proposers select the highest bid, commit selection, and await the “ExecutionPayloadReveal” (block payload).
• The Payload Timeliness Committee ensures timely delivery; block weights and fork choice are adjusted using committee votes (±Δ).
• Validator rewards:

$R = \text{protocol\_base} + \text{bid\_value},$

with $\text{protocol\_base}$ defined by the beacon-chain reward formula. Pending upgrades contemplate redistribution of MEV via parameterized $\alpha$.

Auction designs extend toward future-block auctions, as in the “Flashback” scheme, exploiting the pre-determined future proposer schedule of PoS Ethereum. Builders pre-commit premium transactions across multiple slots, inducing improved long-term equilibria for proposer, builder, and searcher utilities (Mao et al., 15 May 2024).

4. MEV Management and Mitigation Mechanisms

ePBS enables protocol-native MEV mitigation:

• MEV Smoothing: Block-level MEV is split among attestation committee members, reducing variance in proposer rewards and improving reward equity for validators.
• Burn Auctions: Instead of paying bids to proposers, builders commit to burning ETH, directly deflating ETH supply and diminishing MEV-driven incentive distortions.
• Subjective Base-Fee Burns: Builders bid base burns above observed maxima and optional tips; base-burns are destroyed, tips accrue to proposers.

Game-theoretic analysis confirms that sufficient slashing penalties prevent rational builder censorship and collusion; on-chain visibility of bids and commitments eliminates relay favoritism (Koegler, 22 Jun 2025). Validator costs are reduced (≈99× less bandwidth for header-only gossip), making large-scale staking more accessible.

5. Liveness Pathologies: The Free Option Problem

ePBS introduces a liveness risk wherein the dual-deadline design grants builders a short-dated “free option”: after a commitment, builders—with no additional cost—may withhold payloads or blobs if adverse information (market movements) arrives within the “option window” (typically ≈8 seconds). Exercising this option produces empty blocks and degrades protocol liveness (Mazorra et al., 29 Sep 2025).

Theoretical modeling indicates option value and exercise probability scale positively in market volatility ($\sigma$), window length (T), on-chain liquidity (L), and the proportion $\alpha$ of block value derived from external signals. Builder empirical data confirm that blocks dominated by CEX–DEX arbitrage see option exercise rates up to 23.4%, with network-wide averages of 0.82% per block, surging to 6% in high-volatility events.

Mitigation strategies include:

• Shortening the option window (reducing T), which empirically halves exercise probability per ≈2 second reduction.
• Penalizing exercised options via static/dynamic fees, which converts the “free” option into a “paid” option, suppressing exercise rates.

Both approaches entail trade-offs: tighter deadlines impact throughput (blob propagation); heavy penalties may induce builder concentration and suppress proposer revenue.

Builder Heterogeneity under ePBS Option Exercise

Builder	CEX–DEX Share (%)	Option Exercise Probability (%)
Titan	14.9	0.66
beaverbuild	19.1	0.75
rsync (pre 09/24)	29.0	1.09
blocksmith	79.4	6.86
gigabuilder	84.6	23.4

6. Centralization and Decentralization Dynamics

ePBS protocol innovations promote decentralization among proposers—stake evolution as a provable martingale precludes systematic concentration. In contrast, builder utility is highly convex in MEV capacity; competitive advantage results in amplified rewards and centralization pressure among builders. Numerical examples reveal that a builder with twice the MEV extraction capability bids only ≈1.64× more, yet earns >4× the net profit (Ma et al., 17 Feb 2025).

Mechanism designs like Flashback’s future-block auctions provide partial mitigation by diffusing builder dominance through multi-slot commitment equilibria (Mao et al., 15 May 2024). Nevertheless, economic evidence suggests additional anti-centralization safeguards (such as builder caps or diversity rewards) may be required for a fully balanced ecosystem.

7. Open Challenges and Future Directions

Key challenges for ePBS research include:

• Optimal parameterization of timeliness windows (T), slashing penalties (Δ), and MEV redistribution fractions ($\alpha$) for balancing liveness, security, and builder incentives.
• Formal verification of game-theoretic equilibria in multi-agent, multi-proposer settings under dynamic stake flows.
• Protocol-level support for confidential payload propagation (e.g., payload slices with ephemeral encryption).
• Assessment of long-term MEV smoothing on validator decentralization and security.
• Integration of cross-chain MEV management in multi-consensus frameworks for rollups and L2 bridges.

Modeling suggests MEV burn auctions may rival or exceed EIP-1559 burns, materially impacting ETH supply. Future protocol upgrades must reconcile scalable throughput, robust liveness guarantees, and market diversity in the builder pool (Koegler, 22 Jun 2025, Mazorra et al., 29 Sep 2025).

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Enhanced Proposer-Builder Separation (ePBS) is a pivotal development in blockchain protocol engineering, enshrining fair, trustless, and efficient blockspace allocation with novel primitives for MEV management—while requiring ongoing monitoring and mitigation of emergent centralization and liveness pathologies.