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TLDR:

• The current builder market has undergone significant changes, with newcomers like Titan and Rsyc continuously expanding their market share, gradually overtaking the original share of 0x69 and others.

• The core factors determining market share are the ability to generate value from block building and the ability to capture order flow. Titan expands its market share through subsidies and a robust block building strategy.

• However, market share does not always align with profit margins. Some builders, like eth-builder, have a smaller market share but they maintain high-profit margins per individual block, enabling them to sustain higher levels of profitability.

• To attract more order flow, the builder market is evolving to offer additional services such as pre-confirmation and blockspace futures markets, aiming to optimize the user experience for both searchers and users.

• Various vertical integrations are also taking place. Builder-searcher integration allows for the redirection of profits from the searcher to the block builder. Builders like Rsyc and Beaver continuously expand their market share through builder-searcher integration. Other integrations are theoretically possible, but in practice, they are difficult to detect at the current stage.

The Current Builder Market Overview

We collected data from August 3 to August 10, 2023, and compared it to the results from six months ago. There have been several changes. The market share of builder 0x69 has continued to shrink, being overtaken by Rsyc builder and Titan. In particular, Titan builder deployed starting from April 2023 and took two months to produce 10,000 blocks. Within less than four months, it managed to capture a market share of over 10%.

What remains unchanged is that the builder market is still dominated by a few major players, with the top 5 builders occupying 88% of the total market size.

If we compare it with data from four months ago, 0x69, which used to have the largest market share, has now dropped to fifth place, with its market share being taken over by Titan, which was previously in the second tier, and Rsyc, ranked third.

The core factors determining market share are the ability to generate value from block building and the ability to capture order flow. This also reflects the different profit margins and subsidy rates of each builder, which we will analyze further in the following paragraphs.

In terms of block building ability alone, Titan has clearly made significant strides in this regard. After receiving the bundle passed on by the Searcher, the builder needs to construct a block based on their sorting algorithms. Publicly available information indicates that Titan runs multiple sorting algorithms concurrently, such as simple gas price sorting and basic greedy algorithms, which compete against each other to maximize block value. By utilizing effective sorting algorithms to back-run and increase the value of large blocks and then outbidding others during the bidding phase, Titan achieves growth in market share.

From the perspective of capturing order flow, almost all builders currently have some degree of synergy with the Searcher (we will explain this vertical integration in detail later). Titan, in addition to its reliable block building performance (e.g., never unbundling a bundle) and neutral censorship attitude (e.g., submitting to both OFAC and non-OFAC compliant relays), gains the trust of the Searcher. Additionally, Titan attracts Searchers by introducing more value-added services. For example, when a Searcher has no sufficient gas fee, Titan can choose to pay for the fee themselves, ensuring that the Searcher does not miss out on arbitrage opportunities due to gas fee issues.

Therefore, when the ability to build blocks and capture order flow decreases, the market share of a builder will gradually decline. This may also be one of the reasons for the decline of 0x69.

Profitability of Different Builders

However, a larger market size does not necessarily mean higher profitability for builders. Different builders employ different strategies when it comes to bidding and competing for blockspace.

During each round of blockspace bidding, builders' bids are based on the specific value of MEV (Maximal Extractable Value) and tips contained within the current block. When a block builder's bid exceeds the value they can obtain, the excess amount is referred to as a subsidy. Employing subsidies is often a tactical measure aimed at increasing the probability of block production, thereby attracting more searchers to send additional bundles in subsequent slots.

• TOP 5

Among the top 5 builders, both beaver and flashbots currently do not employ any subsidy strategies. They solely rely on their sorting bundle strategy and the quality of order flows to compete for blockspace. From the table, it can be observed that Beaver exhibits strong profitability among the top 5 builders: it has the highest percentage of profitable blocks and the highest profit margin per block. Although its current market size is slightly lower than Rsyc, Beaver's strong sustained profitability (i.e., Rsyc 15%, beaver 46%) makes it the most profitable builder currently.

On the other hand, Builder 0x69 adopts an aggressive subsidy strategy among the top 5 builders, with subsidies present in almost 77% of the blocks. While its profit margin per block is slightly lower than Titan, its high subsidy strategy allows it to achieve higher sustained profitability than Titan, ultimately surpassing Titan to secure the third position in the top 5.

Flashbots, on the other hand, represents the opposite extreme. Without subsidies, it fails to generate profits, resulting in its market share declining from an initial monopoly to the third position.

As for Titan, it employs appropriate subsidies to increase block production probability while optimizing its sorting strategy to improve the profit margin per block. However, its level of sustained profitability is relatively low, possibly due to a limited number of searchers accessing it and limited order flows (as seen in the data from June in the graph).

• Lurking builders in the dark forest (green)

In the builder market, there is a group of builders who do not aim to occupy a larger market share. Instead, they often only compete for blockspace when there is a significant profit opportunity. Therefore, their characteristics are that profitability is not continuous, and they do not increase block production probability through subsidies. However, they have a higher profit margin per block.

Take "geth go 1.20.7" and "geth go 1.20.5" as examples. They fall into the category of "long tail builders," meaning their total market size is below 1%. However, their profit margin per block far exceeds that of the top 5 builders. They are typical lurkers in the market.

• High subsidies (blue)

There is a type of builder that increases block production probability through high subsidies while having excellent sorting strategies and MEV bundles. They have the characteristics of relatively sustained profitability, high profit margin per block, but a low overall market share.

Represented by "ethbuilder.com," its market share is only 0.6%, but the profit margin per block can reach 11%, which is 11 times that of the top builders. It is also not a flash in the pan like "geth go 1.20.7" and maintains a relatively sustained level of profitability.

• Temporary Losers (red)

The final category consists of builders currently experiencing negative profitability, meaning they incur losses in the process of competing for blockspace. This includes "blocknative," which occupies nearly 3% of the market share, as well as other long-tail builders.

This means that despite their relatively large market size, they can only maintain their market share by increasing subsidies due to their poor ability to construct blocks and lower-profit bundles. However, they lack effective profitability.

A special case is "Assembled by Beelder," which almost does not provide subsidies, and almost all of its blocks are profitable. However, due to the large amount of subsidies, its overall profitability is in the negative range. This is likely due to its inferior bidding strategy.

New Builders

For new builders, there are several considerations to address: the contradiction between block production probability and order flow. Without order flow, there won't be a high block production probability. Why would searchers provide their order flow to a builder with low block production probability?

Currently, searchers are more inclined to send their bundles to the top 5 builders because they have the highest block production probability and do not pose latency risks for searchers.

• Solution 1: Subsidize first to increase block production probability and then attract searchers.

• Solution 2: Similar to Titan, increase the profit per block to maximize the utilization of limited order flow resources. By raising the bidding prices in the block auction market, block production probability can be increased, attracting more order flow.

• Solution 3: Build an internal searcher within the builder. By acting as both a builder and a searcher, the builder can attract order flow resources to itself, thus increasing block production probability and attracting more order flow.

Block Building in the Future

The essence of block building lies in the order flow. Attracting order flow and maximizing its value are crucial factors in securing blockspace.

Currently, a significant portion of MEV (Miner Extractable Value) originates from CEX (Centralized Exchange) and DEX (Decentralized Exchange) arbitrage, accounting for nearly 60%. Therefore, each builder will strive to compete for order flow with high profitability. As bidding in the MEV market becomes more competitive in the future, builders may evolve in two main directions:

1. Block builders focusing on bundling their services with products that support new features and enhance user experiences. This approach aims to create differentiated products that attract more order flow.

2. Highly sophisticated block builders that abstract the complexities of accessing and optimizing blockspace for various stakeholders.

As the competition for order flow intensifies, these two directions of evolution will play a significant role in the future development of builders.

Builder with more products

• Futures on blockspace: Currently, blockspace operates on a spot delivery basis, which means users cannot determine whether their transactions will be included in a specific future block. Futures on blockspace would allow for more convenient cross-chain arbitrage and scenarios like scheduled payments.

• Conditional transaction execution: For example, when the value of staked tokens reaches a certain threshold, a withdrawal transaction can be promptly included in a block. Similarly, it can assist traders in risk analysis. If funds are about to be sent to a potentially risky contract, the block builder can choose not to include the transaction in the current block. Once the risk is mitigated or the signer reconfirms the signature, the transaction can be executed.

• Pre-confirmation: It takes approximately 12.8 minutes for a transaction to be confirmed on Ethereum, which may not be practical for certain financial scenarios. By introducing pre-confirmation, the builder can make a commitment to users to include specific transactions in a block ahead of time, reducing their waiting time. If the builder acts maliciously, they can be penalized or slashed.

These additional products and features provided by builders offer enhanced flexibility, efficiency, and customization options for users, catering to specific use cases and improving the overall blockchain experience.

Builder with more abstracting function:

• Builder with cross-domain MEV: In this scenario, a group of builders operates across different chains, simplifying the implementation of cross-domain MEV logic. This approach allows for easier capturing of MEV opportunities that span multiple blockchain networks. By abstracting the complexities of interacting with different chains and coordinating transactions, these builders enable seamless cross-chain MEV extraction and maximize the potential value across multiple domains.

Vertical Integration

Vertical integration refers to one party controlling multiple components in the block-building supply chain. It would also be a major problem in the future, or rather, it is already happening.

• Builder-Searcher integration:

Builder-Searcher integration means the builder and searcher have been both running by a same entity simultaneously. Block builders like Beaver and Rsyc currently have their own integrated searchers (i.e. Builder-Searcher integration). After the merge, more than 25% of the total blocks are generated by Beaver, and over 15% of the blocks are generated by Rsyc, which also integrates a searcher.

The benefit of this approach is that it allows for the redirection of profits from the searcher to the block builder. During the bidding process, the searcher can increase their bidding price to secure winning bids. Since the searcher and builder are part of the same entity, all MEV profits earned by the searcher can be claimed by the builder. This increases the bidding price of the builder and enhances their profit margin.

By integrating the roles of searcher and builder, Beaver-like block builders can optimize their revenue streams and maximize their profitability. This strategy enables them to leverage the MEV profits generated by the searcher component to enhance their bidding power and overall financial performance.

• Builder-Proposer integration:

When a proposer has a slot, they can choose their own builder to produce a block. While this may not always align with the goal of maximizing profits, it ensures that the builder can successfully produce a block and make a profit. The collaboration between proposers and builders is currently not very evident. In theory, builders can run their own nodes, and obtaining a slot is a probabilistic issue. Each epoch has 32 slots, so the probability of becoming a proposer increases as the total number of nodes in the network rises.

• Builder-Relay integration

Builder and relay integration means that a malicious relay could potentially accept blocks from other parties and create their own blocks to front-run them. However, in practical cases, this scenario is unlikely to occur. If a builder is found to include private order flow that should not be included, the next builder can choose not to use such a relay and blacklist it.

Certainly, builder and relay integration allows the builder's blocks to be delivered to the relay more quickly, enabling the builder to bid for blockspace faster within the time constraints of the bidding market. In some cases, a block builder may offer a higher bid but exceed the specified bidding time, thus failing to win the blockspace. Builder and relay integration can alleviate this issue to some extent.

However, it is challenging to discern builder and relay integration at a glance. As shown in the diagram, there are numerous anonymous relays saturating the entire PBS market. However, once malicious behavior, such as censorship, occurs, builders can select alternative relays to avoid it.

Conclusion

The current builder market has undergone significant changes, with newcomers like Titan and Rsyc continuously expanding their market share, gradually overtaking the original share of 0x69 and forming a new Top 5 situation. The core for builders is how to construct blocks more efficiently and acquire more high-value order flow. Titan expands its market share through subsidies and a robust block building strategy. However, market share does not always align with profit margins. Some builders, like ETH Builder, may have a smaller market share and limited activity, but they maintain high-profit margins per individual block, enabling them to sustain higher levels of profitability. The builder market is evolving, and there will be more services like Pre-confirmation to optimize the user experience and streamline processes for searchers and users. Various integrations are also taking place, with Rsyc and beaver expanding their market share through searcher integration strategies.