Enshrined Proposer–Builder Separation (ePBS)

• ePBS is a protocol-level mechanism in Ethereum that formally separates block proposers and builders to improve decentralization and transparency.
• It embeds on-chain auctions with technical and socioeconomic implications, including challenges like the free option problem and centralization risks.
• The design leverages strict timing and penalty mechanisms to mitigate liveness risks while balancing competitive builder markets and validator reward parity.

Enshrined Proposer–Builder Separation (ePBS) is a protocol-level mechanism in Ethereum that formally embeds the separation of block production responsibilities: proposers, who select and publish blocks, and builders, who assemble transaction payloads and bundle MEV. While variants of proposer–builder separation have operated off-chain (e.g., via MEV-Boost), ePBS refers to the on-chain, consensus-integrated specification of this function (notably as introduced with EIP-7732 and the Glamsterdam upgrade). ePBS aims to improve decentralization, mitigate MEV extraction risks, reduce validator computational overhead, and facilitate transparent and accountable blockspace auctions. However, it generates new liveness, incentive, and centralization challenges, including the so-called "free option problem". Below, the main aspects of ePBS are detailed, spanning from its technical architecture to its socioeconomic and game-theoretic impacts.

1. Protocol Architecture and Rationale

ePBS is designed to eliminate trusted intermediaries (such as off-chain relays) and anchor the proposer–builder market within the protocol. At each slot, the validator serving as proposer issues a beacon block that publicly commits to a block header, typically built and bid upon by an external builder. Builders subsequently reveal complete execution payloads and blob data within protocol-enforced windows, monitored by a Payload Timeliness Committee (PTC)—usually around 4 seconds for payload and 10 seconds for blobs. This pipelined design decouples computational execution from data propagation, improving protocol scalability and timeliness (Mazorra et al., 29 Sep 2025, Koegler, 22 Jun 2025).

The protocol embeds an on-chain auction. Builders submit block header bids (including payload commitments) to proposers, who select the highest bid for inclusion. Accountability is enforced through required builder staking, builder slashing or forfeitures upon failure to deliver payloads (“empty slot” handling), and on-chain committee attestation (e.g., PTC assessment of timeliness and honesty). Such enshrinement is motivated by desires for trustlessness, censorship resistance, equitable validator reward distribution, and minimization of off-chain collusion risks (Koegler, 22 Jun 2025).

2. Free Option Problem: Risks and Economic Implications

A central—and uniquely protocol-introduced—feature of ePBS is the so-called "free option problem" (Mazorra et al., 29 Sep 2025). After the proposer has committed to a builder's block header, the builder retains discretion during a short window (typically 8 seconds) whether to furnish the full execution data. If new external information (e.g., sharp CEX–DEX price moves) renders the planned payload unprofitable or loss-inducing (for example, in adverse DEX arbitrage), the builder can unilaterally withhold the data, rendering the slot empty (i.e., the block is not finalized with a state transition).

The value of this option, and its exercise probability, scale positively with market volatility, the length of the option window, and the share of block value sensitive to external information. Theoretical analysis formalizes the expected builder profit at the end of the window as:

$$\Pi_\tau(y) = \mu + (1 + r_\tau)y - P_\mathrm{DEX}(y/P_0)$$

where

• $\mu$ = "base" block value (orders not affected by external arbitrage),
• $y$ = DEX trade size,
• $r_\tau$ = price return over the option window,
• $P_\mathrm{DEX}$ = DEX trading cost function.

The builder solves:

$V^* = \max_{y} \mathbb{E}[\max\{0,\,\Pi_\tau(y)\}]$

and the "option" is exercised (i.e., block abandoned) if $\Pi_\tau(y) < 0$. Under typical market conditions, the empirical incidence is low (≈0.82% of blocks), but during volatility spikes it can reach ≈6%—precisely when timely execution matters most for users and DeFi protocols (Mazorra et al., 29 Sep 2025).

3. Centralization Dynamics and Auction Theory

ePBS attempts to equalize validator (proposer) rewards via auction design: proposers select the highest (usually blinded) block bid among competing builders, and competitive builder markets force expected rewards toward parity among proposers (Bahrani et al., 22 Jan 2024). If $k$ independent, specialized builders each bid blocks drawn from an i.i.d. reward distribution $D_Y$, auction theory (first-price, with revenue equivalence) implies that the expected reward for any proposer (conditioned on being selected) is within a $1 + O(1/\log k)$ multiplicative gap of any other proposer (Theorem 4 in (Bahrani et al., 22 Jan 2024)). Thus, validator reward distribution becomes almost uniform as the builder market becomes competitive.

However, builder centralization remains a persistent risk. Game-theoretic and stochastic models (Tullock contests, Polya urn processes) confirm that heterogeneity in builder block reward extraction capabilities or private order flow access rapidly favors the most advanced builders (Ma et al., 17 Feb 2025Bahrani et al., 22 Jan 2024). Simulation and empirical studies reveal that a few builders with superior MEV access capture the majority of blocks, and the process exhibits positive feedback: those winning more blocks attract further exclusive order flow, amplifying their advantage. In stochastic approximation terms (Theorem 2 in (Wang et al., 16 Oct 2024)), a builder’s probability of winning converges to either 0 (exit) or 1 (monopoly) over time, implying robust monopoly formation under persistent asymmetry.

A further risk arises from proposed execution ticket (ET) or execution auction (EA) designs for future proposer rights (Pai et al., 6 Aug 2024). In these models, the bidder with the best ex-ante distribution of slot values always wins, locking in persistent centralization even without multi-block MEV. Subsequent just-in-time resale mechanisms (JIT auctions) only reinforce this, as the initial winner leverages their reserve price advantage, capturing more surplus.

4. Market, Auction, and Socioeconomic Effects

ePBS changes both validator and builder market dynamics:

• Validators relinquish block composition, relying on auctioned bids. Empirical data confirm more level block reward distribution across proposers, mitigating concentration of stake that would otherwise arise from endogenous reinvestment processes (Bahrani et al., 22 Jan 2024, Ma et al., 17 Feb 2025).
• Builders compete in an asymmetric information environment. With ~12% of transactions submitted as private order flows (comprising ~55% of block value (Wang et al., 16 Oct 2024)), dominant builders with greater private access bid less aggressively (lower bid-to-value ratio) but still capture >95% of blocks, shifting profit centralization from validators to the builder stratum (Wang et al., 16 Oct 2024). As described by the asymmetry auction model:

$b_t^k = s_t^k(v_t^k, r_t)$

where the bid function $s_t^k$ and block valuation $v_t^k$ emphasize private order flow heterogeneity.

• Protected channels (private RPCs, OFAs) and fee models further influence economic outcomes. Design choices—per-transaction fees versus block-based subscriptions—directly affect transaction execution speed, inclusion reliability, and user MEV rebates (Janicot et al., 26 May 2025).
• Protocol additions such as MEV smoothing via committee sharing and burn auction schemes (see EIP-7732, “Spam Resistant Block Creator Selection via Burn Auction”, “MEV Burn”) offer additional distributional and deflationary effects (Koegler, 22 Jun 2025).

5. Liveness, Security, and Mitigation

The "free option" phenomenon introduced by pipelined block confirmation (payload commit, delayed data delivery) poses a liveness threat: the protocol may produce an empty block if the builder withholds the payload on adverse information. This risk is most acute during volatile periods—precisely when network liveness is paramount for user welfare.

Mitigation strategies, formalized and empirically validated in (Mazorra et al., 29 Sep 2025), include:

• Shortening the option window: Probabilistic exercise declines nonlinearly with shorter windows (e.g., from 8 s to 2 s), but may restrict data propagation and limit overall throughput.
• Direct penalties: Imposing a static or dynamically-tuned slashing penalty reduces free option value significantly—80%+ mitigation for modest penalties (e.g., 0.15 ETH), though at the potential cost of raising builder entry barriers or reducing auction competitiveness.
• Protocol-level adaptations: Introducing threshold-based or responsive penalty mechanisms (e.g., gradient descent to adaptively set penalties to maintain target exercise rates).

Mathematically, the option-adjusted builder payoff under penalty $p$ is:

$$V^*(p) = \max_{y} \mathbb{E}[\max\{-p,\,\mu + (1 + r_\tau)y - P_\mathrm{DEX}(y/P_0)\}]$$

with

$$\frac{\partial V^*}{\partial p} = -\Pr[\mu + (1 + r_\tau)y - P_\mathrm{DEX}(y/P_0) < 0]$$

Penalty tuning thus directly controls the incidence of liveness-degrading option exercise.

6. Open Challenges and Design Recommendations

While ePBS offers a more trustless, protocol-steered approach to block production, its structural separation does not inherently resolve information disparity, builder centralization, or auction fairness (Wang et al., 16 Oct 2024, Gupta et al., 2023). The following major open challenges and recommendations have emerged:

• Bundle auction unbundling: Splitting top-of-block opportunities from block-body auctions may limit advantages to high-frequency integrated builders and counteract centralizing tendencies (Gupta et al., 2023).
• Transparent order flow: Regulating or incentivizing broader distribution of private order flow from searchers to builders can impede monopoly formation (Wang et al., 16 Oct 2024).
• Penalty calibration: Dynamically adapting penalties for option exercise is imperative to balance liveness and market efficiency.
• Architecture flexibility: Maintaining protocol extensibility to support future auction models (e.g., Flashback (Mao et al., 15 May 2024)), additive MEV smoothing, or alternate incentive schemes.

7. Summary Table: Key Effects of ePBS vs. MEV-Boost

Protocol Layer	ePBS (Enshrined)	MEV-Boost (Off-Chain)
Role Separation	Enforced by protocol (EIP-7732)	Middleware/relay-based
Trust Assumptions	No external relays; on-chain accountability	Relays are trusted
Reward Equity (Proposer)	High (via auction-theoretic equalization)	Medium–Low
Builder Centralization	High risk (esp. with private flows)	Moderate–High
Free Option Problem	Yes (requires mitigation)	No (commit/deliver jointly)
Liveness Risk	Empty slots if builder exercises option	Lower

Conclusion

Enshrined Proposer–Builder Separation fundamentally reorganizes Ethereum’s block production incentives and security landscape by moving to an on-chain, protocol-specified separation of transaction proposal and assembly. It offers substantial improvements in validator reward parity, transparency, and trust-minimization, but introduces new liveness and centralization challenges, most notably through the free option problem and positive-feedback auction dynamics under information asymmetry. Effective protocol design under ePBS requires careful mechanism engineering to maintain liveness, market fairness, MEV mitigation, and robust decentralization, especially as the ecosystem evolves to accommodate high transaction volumes, volatile external markets, and increasingly sophisticated MEV extraction strategies (Mazorra et al., 29 Sep 2025, Koegler, 22 Jun 2025, Wang et al., 16 Oct 2024, Bahrani et al., 22 Jan 2024).