This blog series explores the evolution of Proposer-Builder Separation (PBS) within Ethereum and how Radius brings a new perspective to PBS in the Layer 2 (L2) ecosystem through its Blockspace Network. PBS has become a key concept for improving block production efficiency and decentralization in Ethereum. The article first looks at PBS’s development in Layer 1 (L1) Ethereum, then shifts focus to how Radius aims to optimize L2 revenue through the Blockspace Network, contributing to the broader ecosystem.

2.1 PBS in Ethereum

In Ethereum, Proposer-Builder Separation (PBS) was introduced to tackle issues of centralization and MEV (Maximal Extractable Value) extraction by splitting the roles of the Proposer and Builder. Over time, PBS has evolved significantly — starting as an out-of-protocol concept and gradually moving towards an in-protocol structure.

Initially, PBS relied on the introduction of a "Relay" through Flashbots' MEV-Boost architecture, which maintained trust between Proposers and Builders and facilitated efficient block production. As the model developed, Enshrined PBS (ePBS) aimed to minimize the Relay's role and further optimize the network's validation process. Within the in-protocol PBS framework, structures like Two-slot PBS and the Payload Timeliness Committee (PTC) were created to enhance transparency in block creation. Additionally, Protocol-Enforced Proposer Commitments (PEPC) were introduced to enforce Proposers' commitments at the protocol level, helping clarify the specific roles and responsibilities of Proposers and Builders.

Other mechanisms, such as Inclusion Lists and Execution Tickets, were also developed to ensure fair inclusion of transactions and to decentralize and enhance the efficiency of block production rights. The conversation on how these evolving mechanisms affect block production and resource allocation continues to be an active area of discussion within the Ethereum ecosystem.

The advantages of this approach are as follows:

1. Increased revenue for Proposers through MEV optimization

   The process of extracting MEV is highly complex and requires specialized knowledge for optimization. Builders are the entities optimized for this task, constructing MEV-optimized blocks to provide to Proposers. Proposers can select these blocks to gain high revenue without the burden of block building.

2. Stabilization of Proposer set decentralization

   Since one can participate as a Proposer and earn high revenue without the need for MEV expertise, more participants are motivated to become Proposers. This increase in participants promotes decentralization and contributes to the stabilization of the network. Such a structure plays a crucial role in enhancing network security and preventing centralization.

The PBS concept can also extend to Layer 2 (L2). L2 Sequencers will aim to optimize blockspace to maximize their revenue. Therefore, by separating the role of Sequencers, Builders can construct blocks while Sequencers select the most profitable block. This allows L2 Sequencers to maximize their profits by choosing optimized MEV blocks without the burden of block building. Simultaneously, decentralizing Sequencing participants helps maintain the robustness and liveness of the L2 network. Such a structure promotes decentralization of the L2 network, contributing to a more stable and secure system.

2.2 PBS in Layer 2: New Interpretations and Expansion

Proposer-Builder Separation (PBS) in L2 shares similarities with the concept in L1 but is adapted to consider L2’s unique characteristics and challenges. L2 was developed to solve Ethereum’s scalability issues and reduce transaction fees, but problems still exist in terms of transaction construction, block creation, MEV extraction, network decentralization, and efficiency. In particular, L2’s PBS focuses on the role of the Sequencer and the subsequent optimization of blockspace, with discussions revolving around MEV and network efficiency.

2.2.1 L2’s Characteristics and Challenges

One of L2’s main challenges is “composability” and compatibility issues across various networks. Composability refers to the interaction between different protocols or chains, and it poses challenges on two fronts in L2:

1. Composability across the same L2s: For example, if multiple chains use the OP Stack, how will they communicate without going through L1? This communication issue is tied to the inherent limitations of L2 networks.

2. Composability across different L2s: Compatibility problems also arise among L2s using different technologies, such as zk-Rollups, StarkWare-based L2s, and zkEVMs. Each operates with different structures, leading to inconsistencies in transaction execution and block creation.

Additionally, block production and MEV extraction in L2 take on new interpretations. Faster block production times and pre-confirmation mean that transactions can be confirmed faster than on L1, resulting in different MEV optimization approaches. Since Sequencers can quickly produce and validate blocks, the frequency of block creation increases, but the methods to enhance block profitability become more complex.

2.2.2 PBS in L2 and the Role of Sequencers

The role of Sequencers in L2 is akin to a combined form of the Proposer and Builder roles in L1. Sequencers are responsible for assembling blocks, processing transactions, and determining the order in which transactions are included in the network. However, the process of Sequencing also raises significant challenges related to maximizing MEV revenue and efficient block production. Specifically, the characteristics of L2 Sequencers can lead to the following issues:

• Sequencer Centralization and Liveness Issues: Since L2 Sequencers are often not sufficiently decentralized, they may not guarantee complete network liveness. A single point of failure in a Sequencer can lead to network outages or vulnerabilities to denial-of-service attacks, hindering stable transaction processing.

• Inefficient Use of Blockspace: L2 Sequencers manage their own transaction pools and can prioritize or reorder transactions to extract MEV. However, compared to a specialized Builder in L1 who constructs optimized blocks, this approach may not use blockspace as efficiently. Such inefficiency could lead to increased transaction fees and reduced network performance. If a Sequencer lacks expertise in block construction optimization, there may be limitations in maximizing MEV revenue.

To address these issues, it is necessary to decentralize Sequencers and separate the role of professional Builders responsible for optimized block building. This enables optimization at each stage of block construction and transaction inclusion, enhancing the overall efficiency of the network.

2.3 The Future of PBS in L2: Community Asset vs. Public Good

PBS in L2 can be interpreted in various ways depending on the specific characteristics of the L2 network and its Sequencer structure. A major topic of discussion is whether Sequencers should be seen as community-managed assets (commodities) or as a public good utilized by the entire network. This debate is significant because how Sequencers are viewed and how blockspace is accessed have a substantial impact on the profitability and level of decentralization within the L2 network.

From this perspective, PBS in L2 proposes new approaches and structures for optimizing blockspace and separating the roles of Sequencers, and these will be key factors in determining the profitability, efficiency, and level of decentralization within the L2 network.