Competitive block building describes the mechanism where multiple entities, known as builders, compete to construct the most profitable block of transactions for a validator to propose. This process involves builders collecting transactions from a mempool or private order flow, optimizing the order to maximize value, and then submitting their proposed block to a validator. The validator selects the block offering the highest reward, typically in the form of transaction fees and Maximal Extractable Value (MEV).
Incentive
The competition among builders is driven by the financial incentive to capture MEV, which includes arbitrage opportunities, liquidations, and other value extraction strategies. This competitive environment encourages builders to invest in sophisticated algorithms and infrastructure to identify and execute profitable transaction sequences. The resulting competition for block space can lead to higher rewards for validators and a more efficient allocation of network resources.
Architecture
Competitive block building introduces a separation of roles between block building and block proposal, a key feature of modern blockchain architectures like Ethereum’s Proposer-Builder Separation (PBS). This design aims to mitigate the centralization risks associated with validators having exclusive control over transaction ordering. By externalizing the building process, the system promotes greater decentralization and reduces the potential for single-entity manipulation of transaction sequencing.
