From PBS to ePBS: the Microstructure of Block Building

2026-07-13

AI Summary

This study investigates the impact of Ethereum’s transition from proposer-builder separation (PBS) to enshrined PBS (ePBS) in the Glamsterdam upgrade on block-building microstructure, with a focus on incentive and efficiency challenges arising from information asymmetry and heterogeneous latency. By formulating an incomplete-information, two-stage auction model incorporating verifiable messages, the authors unify PBS and ePBS as constrained variants of the same strategic game. The analysis reveals that early bids serve a dual role—as both price signals and strategic commitments—and identifies a “ratchet effect” wherein proposers’ ex post discretion to halt or disclose bids undermines commitment credibility. To address this, the paper proposes a limited-commitment mechanism leveraging trusted execution environments (TEEs), designed through perfect Bayesian equilibrium, calibrated no-regret learning, and bilinear optimization. Under conservative benchmarks, this mechanism improves proposer revenue by approximately 25% compared to standard first-price auctions.

Abstract

Ethereum's Glamsterdam upgrade introduces enshrined proposer-builder separation (ePBS), replacing relay-centric PBS with direct builder bids to proposers. We study how this shift changes the block-building microstructure through a general imperfect-information two-stage auction with verifiable messages, where an early bid serves as both a price offer and a signal. PBS and ePBS are modeled as restrictions of the same block-building game: PBS fixes stopping and disclosure exogenously, while ePBS lets the proposer choose stopping and disclosure ex post. Latency heterogeneity is captured by asymmetric information updates: fast builders observe disclosed early information before rebidding, while slow builders do not. We combine exact perfect Bayesian equilibrium characterizations in tractable cases with calibrated no-regret learning in finite games. For PBS, we show that separating equilibria preserve the standard first-price-auction payoff benchmark and provide conditions for their existence. For ePBS, we demonstrate a ratchet effect: because the proposer can defer block proposal and use early bid information in the second stage, builders anticipate ex-post extraction and shade or pool early bids, generating allocation inefficiency and revenue-efficiency valleys. We interpret this ratchet distortion as a commitment failure. Under full commitment, the optimal policy collapses to the static Myerson auction and removes the ratchet channel. To realize part of this commitment advantage in a feasible mechanism, we propose a Trusted Execution Environment (TEE) sidecar that enforces limited commitment. We formulate the revenue-maximizing TEE mechanism as a bilinear optimization problem. In conservative finite benchmarks, the TEE design increases the proposer revenue relative to the first-price benchmark by approximately \(25\%\).

Problem

• ePBS
• block building microstructure
• information asymmetry
• auction design
• commitment failure

Innovation

• ePBS
• ratchet effect
• commitment failure
• Trusted Execution Environment (TEE)
• two-stage auction