ETH 2.0 Validators — Capturing MEV
By: Eyal Markovich, Co-founder & COO
The introduction of external block builders in ETH POS raises a number of important questions: How much profit can a validator expect from an external builder, and is it worth the risk? I will not discuss here the risks associated with external builders, but I will try to clarify the first question on expected profit.
The expected profit for a validator is determined by two factors:
- MEV Availability — Does the network expose significant MEV at the time the validator is the proposer?
- MEV Expertise — Does the validator have the expertise to extract the MEV?
The probability of being selected to propose a block at the time large MEV is present is determined by the amount of ETH staked (or the number of validators). The data used for this analysis can be used to calculate the most optimal staking amount (in percentage of the network).
In the case that an opportunity for large MEV does exist, a validator will capture it only if it has the knowledge and infrastructure to extract the MEV. It is safe to assume that most validators do not have this capacity. The alternative, in this case, is to use external builders, which can propose a block with a significantly larger profit to the validator.
To understand the potential of external builders, we ran an experiment over the last weekend that compared the expected profit a validator will make from creating a local block versus using an external block builder with MEV expertise.
We used two builders for this test running on the ETH mainnet. The first builder is the bloXroute Max-Profit builder without access to private transactions and with access to the bloXroute BDN. This builder has access to all bloXroute customer bundles that were submitted by our searchers. The second builder is building directly from the mempool and has no access to the searcher bundles.
While the Max-Profit builder is missing the private transactions, it is safe to assume that the results would be similar with access to private transactions.
On average, the profit from the Max-Profit relay is only 0.027ETH above the vanilla builder. It might not justify the risk of using MEV-boost and an external relay. However, as discussed above, if a validator is lucky enough to propose at the time of large MEV, the profit can be significantly higher. The table below shows the top six blocks during the test:
Finally, lighthouse and prysm added an incredibly useful option to use the external builder only when its bid is over a certain threshold. For instance, a validator can build its own blocks unless the builder submits a block worth at least .1 Eth (or whatever threshold the validator sets).
The table below shows the number of blocks for which the difference in profit between the Max-Profit and the vanilla blocks was higher than the target:
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