How Searchers and Builders are Creating a New MEV Supply Chain
If you’ve spent any time in the deeper corners of the crypto world, you’ve probably heard the term MEV, or Maximal Extractable Value. For a long time, it was this shadowy, complex force—a sort of ‘dark forest’ where only the most sophisticated players could compete. But things have changed. Drastically. We’re now witnessing the rise of a highly specialized and formalized MEV supply chain, a system that’s transforming how transactions are processed on Ethereum. It’s no longer a free-for-all. It’s an assembly line, with distinct roles, specialized workers, and a whole new economic model. At the heart of this revolution are two key players: Searchers and Builders.
Understanding this new dynamic isn’t just for degens and protocol developers. It’s crucial for anyone who wants to grasp where Ethereum is heading. This shift impacts everything from transaction fees and network security to the very principles of decentralization. So, forget what you thought you knew about transaction ordering. Let’s pull back the curtain on the new block construction economy.
Key Takeaways
- Specialization is Key: The modern MEV landscape has split the single role of a ‘miner/validator’ into specialized actors: Searchers, Builders, and Proposers.
- Searchers Find the Alpha: Searchers are sophisticated agents who scan the mempool for profitable opportunities like arbitrage and liquidations, creating ‘bundles’ of transactions.
- Builders Construct the Blocks: Builders are a new, powerful entity. They aggregate bundles from many searchers and construct the most profitable block possible to offer to validators.
- PBS is the Framework: This entire system, known as Proposer-Builder Separation (PBS), was kickstarted by Flashbots’ MEV-Boost and aims to make the process more efficient and democratic.
- Impact on Ethereum: This new MEV supply chain has profound implications for network censorship, decentralization, and the economic security of the entire protocol.
First, A Quick Refresher: What is MEV Anyway?
Before we dive into the supply chain, let’s get on the same page. MEV, or Maximal Extractable Value, is the profit a block producer (a miner in Proof-of-Work, or a validator in Proof-of-Stake) can make by including, excluding, or reordering transactions within a block they are producing.
Think of it like this: Imagine you’re the editor of a newspaper’s front page, and you get to decide which stories go where. You could place a story about a company’s stellar earnings right next to an ad for their stock. The order and placement matter. On a blockchain, the ‘editor’ is the block producer, and they have the power to arrange transactions. They can see all the pending transactions in the ‘mempool’—a waiting room for transactions—and can organize them to their own benefit.
Classic examples of MEV include:
- Arbitrage: Spotting a price difference for the same asset on two different decentralized exchanges (DEXs), buying on the cheaper one, and selling on the more expensive one, all within the same block.
- Liquidations: In lending protocols like Aave or Compound, if a user’s collateral drops below a certain threshold, their position can be liquidated. An MEV extractor can be the first to trigger that liquidation and claim the reward.
- Sandwich Attacks: This is a more predatory form. A bot sees a large pending trade, places a buy order right before it to drive the price up, lets the victim’s trade execute at that higher price, and then immediately sells, pocketing the difference. Ouch.
In the old days, this was a chaotic game. Miners (and later, validators) either needed to be incredibly sophisticated to find and execute these strategies themselves or they would simply process transactions first-come, first-served, leaving money on the table. This created a massive incentive for centralization, as only the biggest, most well-resourced players could effectively extract MEV. It was messy, inefficient, and created network congestion through ‘priority gas auctions’ (PGAs) where bots would furiously bid up gas fees to get their transactions included first.
The Old World vs. The New: Introducing Proposer-Builder Separation (PBS)
The Ethereum Merge and the rise of Proof-of-Stake brought a golden opportunity to rethink this process. The solution that has emerged is called Proposer-Builder Separation, or PBS. It’s a simple idea with profound consequences: what if the entity proposing the block (the validator) didn’t have to be the one who built it?
This is the core of the new MEV supply chain. Instead of one entity doing everything, the process is broken down into specialized roles. It’s the industrial revolution for block production.
- Users: They create transactions. Simple enough.
- Searchers: They find profitable MEV opportunities and create ‘bundles’ of transactions to capture that value.
- Builders: They aggregate bundles from many searchers and construct full, highly profitable blocks.
- Relays: They act as trusted middlemen, connecting Builders to Proposers.
- Proposers (Validators): They simply pick the most profitable block from the ones offered by builders, without needing to know what’s inside.
This separation prevents a single validator from needing immense computational power and strategic prowess to compete. A solo staker at home can now earn a share of the most complex MEV opportunities just by running software like MEV-Boost, which connects them to this marketplace. It democratizes access to MEV rewards. Let’s dig into the new stars of the show: Searchers and Builders.
The Searchers: The Opportunity Hunters
Searchers are the nimble, highly-specialized hunters of the ecosystem. They are typically sophisticated teams or individuals running complex algorithms that constantly monitor the mempool for profitable transaction sequences. They aren’t trying to build a whole block; they are just looking for their one golden ticket—their profitable ‘bundle’.
A bundle is an atomic, all-or-nothing set of transactions. For example, an arbitrage bundle might contain two transactions: a ‘buy’ on Uniswap and a ‘sell’ on Sushiswap. The searcher submits this bundle with a condition: either both transactions execute in this exact order, or neither does. They also include a hefty tip for the builder who includes their bundle.
It’s a high-stakes, high-speed game. Searchers live on the bleeding edge, constantly refining their strategies and co-locating their servers as close to major Ethereum nodes as possible to get the earliest look at incoming transactions. They are the strategists, the alpha-seekers, the ones who find the needles of pure profit in the haystack of the mempool.
The Builders: The Master Architects of Blocks
If searchers are hunters, builders are the master chefs running a Michelin-star kitchen. They don’t go out and find the ingredients themselves. Instead, searchers from all over the world bring them their finest ingredients (the bundles). The builder’s job is to take all these incoming bundles, plus a bunch of regular, everyday transactions from the public mempool, and assemble them into the single most valuable, most profitable block possible.
This is an incredibly complex optimization problem. Which bundles are compatible? Which ones offer the best tips? How do you fill the rest of the block space to maximize gas fees? The best builders are those with the most sophisticated packing algorithms and the best ‘order flow’—meaning, the most searchers sending them exclusive bundles.
This competition among builders is fierce. They are in a constant race to produce the ‘heaviest’ block—the one with the highest total fees and MEV tips—because that’s the one the validator (the Proposer) will ultimately choose. This specialization allows for incredible efficiency. A validator doesn’t need to run a supercomputer to solve this puzzle; they can just outsource it to the competitive builder market.
After constructing a block, the builder sends only the block header and its total bid (the payment to the proposer) to a Relay. The validator sees the bids from multiple builders and accepts the highest one, signing the header without ever seeing the full contents. This prevents the validator from stealing the MEV opportunities for themselves. Once signed, the Relay releases the full block to the validator to be formally proposed to the network.
Why This New MEV Supply Chain Matters
Okay, so the process is more complicated. Who cares? Well, this new MEV supply chain has massive implications for the health and future of Ethereum.
Benefits: Efficiency and Democratization
The most obvious win is efficiency. By allowing specialists to focus on what they do best, the market produces more optimal blocks. More MEV is captured, and a larger portion of it is passed on to validators (and by extension, stakers), increasing the economic security of the network. A solo validator can now earn returns that were previously only available to massive, centralized mining pools. This is a huge win for decentralization.
Concerns: Centralization and Censorship
However, this new model isn’t without its risks. The builder role has become a major point of potential centralization. As of today, a very small number of builders produce a vast majority of Ethereum blocks. Why? Because of network effects. The builders who attract the most exclusive order flow from searchers can produce the most valuable blocks, which in turn attracts even more searchers. It’s a powerful feedback loop.
This concentration of power is worrying. What happens if these few dominant builders are coerced by a government to censor certain transactions (like those interacting with Tornado Cash)? This is not a theoretical problem; it has already happened. The fight for a neutral, censorship-resistant block supply chain is one of the most important battles in crypto today.
Initiatives are underway to combat this, including building more geographically diverse and neutral relays and pushing for ‘inclusion lists’ that force builders to include certain transactions, but it remains a significant challenge.
The Road Ahead: Enshrined PBS (ePBS)
Right now, this entire system runs on an out-of-protocol solution called MEV-Boost, developed by Flashbots. It’s an optional piece of software that validators can choose to run. While adoption is incredibly high, the ultimate goal is to ‘enshrine’ Proposer-Builder Separation directly into the Ethereum protocol itself. This is known as ePBS.
Enshrining the system would make it a native, core part of Ethereum, removing the need for trusted third-party relays and further hardening the network against censorship and centralization. There are multiple proposals for how to implement ePBS, each with its own trade-offs, and it remains a key area of active research and development for the Ethereum core team. Its implementation will be another landmark event in the network’s evolution, on par with the Merge itself.
Conclusion
The transition from a chaotic free-for-all to a structured MEV supply chain marks a major maturation of the Ethereum ecosystem. The specialization into searchers and builders has unlocked new levels of efficiency and democratized access to rewards for validators of all sizes. It’s a brilliant, complex, and evolving system that elegantly solves many of the problems that plagued the old MEV landscape.
But the story is far from over. As we’ve seen, this new structure brings its own set of challenges, primarily the looming threat of centralization and censorship at the builder level. The ongoing work on enshrined PBS and the community’s push for a more resilient and neutral marketplace show that the core ethos of decentralization is still the guiding star. The MEV supply chain will continue to evolve, and for those building, using, and investing in Ethereum, understanding its mechanics is no longer optional—it’s essential.
FAQ
Is MEV bad for users?
It can be. Predatory MEV, like sandwich attacks, directly harms users by giving them worse execution prices on their trades. However, ‘good’ MEV, like arbitrage, is actually beneficial as it helps keep prices consistent across different decentralized exchanges, making the market more efficient for everyone. The new supply chain doesn’t eliminate bad MEV, but it does prevent it from causing massive network-wide gas spikes like it used to.
Do I need to be a searcher or builder to benefit from MEV?
Not at all! If you are staking ETH, either as a solo validator or through a liquid staking protocol like Lido or Rocket Pool, you are already benefiting. The MEV rewards captured by the builders are passed on as tips to the validators, increasing the overall staking APR. This system allows regular stakers to passively earn a share of the value that was once only accessible to the most sophisticated players.
Why can’t a validator just steal the MEV from a builder’s block?
This is where the relay comes in. A builder submits their full, profitable block to a trusted relay. The relay only shows the validator the block’s *header* and the *bid* (the payment). The validator doesn’t get to see the actual transactions inside until after they’ve cryptographically committed to proposing that block. If they tried to back out or steal the transactions, their signed header would be invalid. This trust mechanism is crucial for the whole system to work and is a key reason why moving to a trustless, enshrined PBS system is a long-term goal for Ethereum.
