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EIP-7732: What is Proposer-Builder Separation and Can it Solve Ethereum’s Bot Problem?

Last Updated July 4, 2024 11:22 AM
James Morales
Last Updated July 4, 2024 11:22 AM

Key Takeaways

  • A new Ethereum Improvement Proposal (EIP) could fundamentally change the way Ethereum blocks is validated.
  • Under EIP-7732, the task of validation would be split between block builders and block proposers.
  • The new Proposer-Builder Separation could help mitigate the negative impact of MEV bots.

Although the Ethereum community recently celebrated gas fees falling to their lowest level in 4 years, the prevalence of Maximum Extractable Value (MEV) bots that drive up costs for everyday users remains a problem.

An Ethereum Improvement Proposal (EIP) submitted on Wednesday, July 6, could help solve the network’s bot problem through a mechanism known as Proposer-Builder Separation (PBS).

Understanding Proposer-Builder Separation

As outlined in EIP-7732 , Proposer-Builder Separation decouples the process of building and proposing blocks on the Ethereum blockchain.

Whereas the current scheme sees validators perform both tasks, PBS separates each Ethereum block into consensus and execution parts. Builders orders and bundles transactions while proposers add them to the blockchain. 

How EIP-7732 Could Impact Ethereum MEV

In a recent blog post  exploring ways to make Ethereum more permissionless and decentralized, Vitalik Buterin argued that PBS could help implement what he called “MEV quarantining.”

As he explained, the current MEV problem stems from the way validators currently order transactions in a block to profit from DeFi arbitrage opportunities. 

By outsourcing the task of choosing and ordering the content of a block to specialized builders, individual stakers no longer need to worry about optimizing DeFi arbitrage themselves. Instead, an auction mechanism lets consensus proposers choose the builder that offers the most profitable block.

Of course, under the PBS scheme proposed by EIP-7732, builders can still participate in MEV extraction. However, opportunities for front-running are significantly diminished and inefficient block proposals will naturally be rejected. 

Minimizing Risk For Bots

Frequently referred to as bots, MEV extraction algorithms have become an unavoidable part of the Ethereum ecosystem. 

In a sense, EIP-7732 simply enshrines the PBS scheme already created by the widespread use of MEV-Boost , a validator optimization software developed by Flashbots.

While it somewhat mitigates the negative effects of maximum extractable value, the popularity of MEV-Boost has opened the software to exploitation. In May, two brothers were arrested on fraud charges for their role in a $25 million hack that lured MEV bots into posting illiquid trades to a validator they controlled and swapping them with tampered transactions.

By universalizing the PBS scheme, the latest Ethereum proposal allows for more trustless interactions, “guaranteeing that an honest [block proposer] will receive payment from the builder regardless of the latter’s actions.”

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