Block Building

TL;DR

At the most basic level, block builders are intermediaries in PoS and PoW systems responsible for ordering and constructing blocks of transactions. This is formalized via Proposer-Builder Separation (PBS): validators propose blocks, but specialized builders compete to assemble them optimally, often by capturing MEV.

Block builders are market-structure entities. They exist in the middle of the stack, positioned between users/transactions and validators/consensus. The economic question: who captures the rents from ordering rights, and how sustainable are those rents?

Companies

Flashbots, bloXroute, Beaverbuild, Titan Builder, rsync-builder, Eden Network, Jito Labs, Espresso Systems, Radius

Compound portfolio company Arbitrum

Overview

Internalized vs. Externalized Network Effects

• Internalized network effects (closed builders):

  Builders rely on proprietary orderflow, exclusive partnerships with wallets, or privileged transaction streams. The more “captive” the orderflow, the more builders commoditize validators (supply side). Example: a wallet routing trades through a preferred builder, ensuring exclusive MEV capture.

• Externalized network effects (open builders):

  Builders rely on open ecosystems, competing in public auctions (e.g., MEV-Boost). Here, the network effect comes from ecosystem-wide participation. Builders must support a broad set of searchers and validators to remain competitive.

The balance resembles platforms vs aggregators:

• Internalized builders act like aggregators (intermediate + extract rents).
• Externalized builders act more like platforms (facilitate ecosystem-wide coordination).

Platform vs. Aggregator Dynamics

• Platform-style builders:
• Provide neutral block-building infrastructure
• Facilitate relationships between searchers (who generate MEV strategies) and validators (who propose blocks)
• Value comes from standardization and reliability
• Example: Flashbots’ original MEV-Boost