From PBS to ePBS: the Microstructure of Block Building

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 \(25\%\).