tldr: Request for papers

Block Bidding Economics on MEV-boost

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Problem Statement

There’s an ongoing concern that the top builders control the entire block production on Ethereum. Today, the top two players are institutional market makers that make up over 50% of the network production jointly, sometimes alone. They have sophisticated, proprietary information from their searchers that empowers them to maintain and expand their market share. Without proprietary data flow, smaller, neutral builders find it more difficult to compete to produce blocks. This centralization might create a systematic risk for Ethereum. 

If we are able to identify the source of these market leader’s competitiveness it will allow us to identify additional areas of research that will increase decentralization. What makes the top builders so big? Do they have a better bundle merging algorithm to produce higher value for rearranging the block? Or, do they have extra private transaction order flow? Or are they subsidizing at large? Pinpointing their competitiveness is the first step into decentralizing market share. 

Background

MEV-Boost has been majorly adopted by validators and is responsible for over 90% of block productions today. The data API endpoint that’s embedded in the software requires Relayers to release data on which block wins, as well as block building submissions from builders. This creates a large open data source to pull from. While there are several sites leveraging this data, we don’t have a comprehensive, in-depth understanding of builder’s bidding strategy, and what it may imply to a macro view of the transaction settlement flow of Ethereum.  

This RFP aims to answer the following questions across various components of research. Applicants may choose to focus on one angle of research, or an applicant might conduct a longer scope of research and conduct a comprehensive study. This includes how the value, order, bundles flow across different roles (users, searchers, builders, relay and validators), with qualitative diagrams, and also to quantifying the MEV revenue size split across roles. The research below will provide a greater understanding of the economics and bidding game across the MEV supply chain. 


Behavior Category / Heuristics

What are current behavior patterns of block builders, in terms of

  • General Setup
    • How many builders does one entity run? 
      • Are they located differently?
      • Do they share order flow?
      • Are they bidding similar range?
    • How many relays does one entity submit to?
  • Payment funnels
    • is there any other payment funnel than coinbase transfer, or colluding with validators?
  • Strategic bidding
    • Latency aspect
      • mempool sourcing time
      • bid submission time
      • co-locate per validators
    • Are they subsidizing?
    • Are they canceling/lowering bids, so to keep surplus as profit?
    • Are they listening to the relay data endpoint to adjust bids in real-time?
    • Are they considering competitor builders’ bidding models?
  • Merging Algorithm
    • How does the block content look like per different builder? is there a pattern of how they merge the bundles?


Economics & Profitability

  • How profitable the top block builders are, by measuring on-chain MEV revenue (bundles & gas fees)?
  • Searcher-Builder
    • How large the cross-domain MEV revenue exist today?
    • How are they sharing order flow across builders?


Order Flow & MEV Redistribution

  • How much exclusive user order flow (from Apps/Wallets) today are re-routing to private mempool builders, away from the public mempool?
  • How much price improvement has OFAs provided to users?


Macro & Systemic Impact

  • Is block bidding today on mev-boost solving the centralization issue after POS? i.e. validator revenue trend over time.
  • How does the MEV txs’ gas auction affect normal txs flow today, in terms of
    • inclusion time (i.e. how much block space are available after MEV bundles during peak hours)
    • gas price
  • How much systemic risks left on the table across the mev-boost design
    • How often does a validator get to propose 2 blocks in a row in the history?
    • How often would Optimistic Relay be likely exploited when MEV value is higher than collateral?

Places to Start 

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