New post on EthResear.ch! Builders' Defection and Incentive Compatibility By: - @nuconstruct 🔗 ethresear.ch/t/25400 Highlights: - PBS creates an imperfect-commitment problem: builders observe all bids and full payloads, and nothing cryptographically forces them to honor the auction outcome rather than replicate/profit from bundles. - In a repeated-game model, honesty is incentive-compatible only if the one-shot defection gain (Δ) is smaller than the expected discounted loss from being caught: Δ ≤ p * (δ/(1−δ)) * π_h; low detection probability p or low patience δ makes defection rational. - Empirically (libmev panel, Sep 2024–Aug 2025), replication-style defection is likely hard to detect on-chain, implying low p (plausibly 0.01–0.1), under which incentive compatibility fails for every major non-TEE builder unless the builder is extremely forward-looking. - The potential economic scale is large: the paper estimates roughly $26M/year of counterfactual defection surplus available to non-TEE builders in the panel, and ~$49M total exposure when including BuilderNet’s TEE-neutralized share. - Therefore commitment must be restored architecturally, not reputationally: prevent builders from learning usable bid/payload details (e.g., TEEs like BuilderNet, commitment-based settlement designs, or cryptographic approaches such as threshold-encrypted mempools / commit-reveal / ZK), while noting ePBS (EIP-7732) and FOCIL (EIP-7805) don’t address this replication/confidentiality channel. ELI5: Ethereum blocks are often built by a “builder” who gets to see everyone’s secret trading plans (bids + transaction bundles) before deciding what goes in the next block. Even if the builder runs an auction and promises to include the winning bundle, it can secretly copy the best bundle for itself and keep the profit. The paper asks: can we rely on the builder’s reputation (fear of losing future business) to stop this? The answer is usually no, because copying is hard to detect and the one-time profit can be big. So the fix should be technical: design the system so the builder can’t reuse what it sees (using TEEs or cryptography), instead of hoping it behaves.

New post on EthResear.ch! Open vs. Sealed: Auction Format Choice for Maximal Extractable Value By: - 🔗 ethresear.ch/t/24454 Highlights: - MEV extracted values are extremely concentrated in a heavy right tail: the top 1% of transactions produce 68% of total revenue (Gini ≈ 0.933), so auction design for high-value events dominates overall revenue outcomes. - Competition intensity differs widely by MEV type (using bribe % as a proxy): sandwiches are near-perfectly competitive (~95% bribe), while naked arbitrage and liquidations leave much more surplus with searchers (~67–68%), implying different effective bidder counts across categories. - Revenue equivalence breaks under affiliated (correlated) valuations; modeling affiliation via a Gaussian common factor yields the linkage-principle ranking: English and second-price sealed-bid (SPSB) generate strictly higher expected revenue than first-price sealed-bid (FPSB) and Dutch for all tested (n, ρ) cells with ρ > 0. - Quantitatively, at moderate affiliation (ρ = 0.5) English/SPSB out-earn FPSB/Dutch by about 14–28% (largest for small n, up to ~30% when n is small), translating to an estimated $10–18M of foregone revenue over the sample period when applied to observed bribe totals. - All-pay auctions are a poor choice in MEV settings once affiliation is considered: FPSB revenues exceed all-pay by roughly 40–120%; additionally, at large n and high ρ, expected revenue can become non-monotonic in ρ (peaking then declining) because near-perfect correlation collapses the order-statistic spread that drives competitive payments. ELI5: Ethereum has “MEV opportunities” (like small profit chances from ordering transactions) that builders sell to searchers using auctions. This paper asks: which kind of auction makes builders earn the most money? The key idea is that searchers’ values are often related (if it’s valuable to one bot, it’s probably valuable to others too). When values are related, open/truth-revealing auctions (like an English auction or a second-price auction) usually make the seller more money than sealed/strategic-shading auctions (like first-price or Dutch). The authors also show MEV money is extremely lopsided: a tiny fraction of transactions produce most of the revenue, so choosing the best auction for those rare big ones matters a lot.

Our next community call will be hosted on Discord: Wed 27 August @ 3pm UTC We'll chat with @nuconstruct about decentralised Ethereum scaling, & how node operators on Hoodi can participate Download the @poapxyz Home App & grab a free POAP when you join the call Link below 👇