Recent findings indicate that the centralization of maximal extractable value (MEV) on Ethereum is escalating, with arbitrageurs gaining a stronger hold on transaction ordering. A research paper has revealed that these arbitrageurs, referred to as “searchers,” are predominantly in-house or have exclusive contracts with the developers of maximal extractable value, who are entrusted with block creation on the Ethereum network.
MEV pertains to the potential profit that blockchain validators or other players can secure by rearranging transactions within a block prior to its finalization. In the Ethereum ecosystem, MEV generally employs tactics such as arbitrage, front-running, or sandwich attacks, where traders capitalize on price discrepancies to boost their profits.
The paper, named “Measuring CEX-DEX Extracted Value and Searcher Profitability: The Darkest of the MEV Dark Forest,” examined how arbitrageurs exploit price differences between centralized (CEX) and decentralized (DEX) crypto exchanges, thereby outpacing minor users.
The report’s authors noted that “at the time of writing, three builders, beaverbuild, Titan, and rsync, control the Ethereum builder market, two of which integrate their own CEX-DEX searchers vertically.” They added that this integration raises significant issues regarding Ethereum’s decentralization and security, as it promotes economies of scale favoring dominant players, enables monopoly pricing leading to proposer loss, and heightens the risk of censorship and commitment attacks.
The study concluded that the monopolization of CEX-DEX arbitrage via exclusive contracts with block builders intensifies the “centralization pressures” within Ethereum’s ecosystem. As a result, it is crucial to consider this when determining the future path and expansion of the layer-1 network.
Under Ethereum’s Proposer-Builder Separation (PBS), block proposers can delegate the task of block construction to entities known as builders to enhance censorship resistance. However, the research paper’s authors and other critics of PBS argue that this system centralizes the network and creates an unfair market environment for smaller participants.
In March, anonymous Ethereum researcher Malik672 suggested that the process of Ethereum block building should be democratized, allowing a vast number of participants to contribute to block building and improve network decentralization. “With 80% of blocks currently proposed by just two entities. This compromises decentralization and fairness,” the researchers observed.
Ethereum’s co-founder, Vitalik Buterin, had previously proposed to address MEV by developing alternative infrastructure, incorporating crypto exchanges. Buterin also suggested that MEV could be reduced by depriving MEV arbitrageurs of the onchain data they need to profit from intricate trades and transaction reordering.
