Decentralization of Ethereum's Builder Market

Blockchains protect an ecosystem worth more than $500bn with strong security properties derived from the principle of decentralization. Is today's blockchain decentralized? In this paper, we empirically studied one of the least decentralized parts of Ethereum, its builder market. The builder market was introduced to fairly distribute Maximal Extractable Value (MEV) among validators and avoid validator centralization. As of the time of writing, two builders produced more than 85% of blocks in Ethereum, creating a concerning centralization factor. However, a common belief is that such centralization "is okay," arguing that builder centralization will not lead to validator centralization. In this empirical study, we quantify the significant proposer losses within the centralized builder market and challenge the belief that this is acceptable. The significant proposer losses, if left uncontrolled, could undermine the goal of PBS. Moreover, MEV mitigation solutions slated for adoption are affected too because they rely on the builder market as an "MEV oracle," which is made inaccurate by centralization. Our investigation reveals the incentive issue within the current MEV supply chain and its implications for builder centralization and proposer losses. Finally, we analyze why the proposed mitigation cannot work and highlight two properties essential for effective solutions.