Demystifying Proposer Builder Separation in DeFi

When I was first dipping my toes into Ethereum, I was swept up by the glitter of “gasless” transactions and the promise of a fee market that would finally be fair for everyone. I’d read about EIP‑1559 like it was a cure for the fee‑inflation plague that had haunted miners for years. Years later, the same idea reappears under a different name: proposer‑builder separation, or PBS for short. The jargon feels like a wall of acronyms, but at its heart it’s about the same principle everyone in everyday investing knows: separate the roles of “order taker” and “order maker” to prevent a single player from making too much power over the price or timing of a trade.

The root of the fear

Let’s zoom out for a moment. Imagine your daily routine: you have a stable job, a budget, a savings goal, maybe a small home equity pot. The financial world you’ve built around that is, on the surface, pretty predictable: employers pay you, you pay bills, you decide whether to invest. Then a new asset class appears—cryptocurrencies—promising high returns and, more crucially, a new playground where the traditional order books of stocks and bonds are replaced by a constantly shifting landscape of blockchains.

It’s easy to see why that would raise a wave of anxiety: If the mechanisms that move prices are hidden behind code and no one can see them, you might feel that the system is rigged in favour of a few. That feeling is not unfounded. Behind every transaction in Ethereum, there is a proposer—the miner or validator who chooses which block of transactions to add to the chain—and a builder—or the software that pulls transactions from a mempool and arranges them into that block. Until recently, these two duties were usually held by the same entity. That overlap created possibilities for what we now call “miner extractable value” (MEV). If your block’s proposer also built the block, they could reorder, front‑run, or even censor transactions, all while pocketing the extra fee revenue or profits from early trades. And that is why PBS is, at its core, a fight for fairness.

What is PBS, really?

Proposer‑builder separation is a protocol design that decouples the role of constructing a block (the builder) from the role of validating and committing that block to the chain (the proposer). Think of a traditional finance broker who arranges a trade and then the custodian who settles it. In the old days of Ethereum, the miner (or validator) did both. In a PBS model, you would have a separate entity or group that pulls the best transactions from the mempool, organizes them into a block, and then a different validator would approve that block and add it to the chain. The key benefit is that the validator no longer has an incentive to manipulate the order of transactions for their own gain because they aren’t responsible for choosing which transactions appear in the block.

How Ethereum’s new layer changes the game

Ethereum’s upgrade to a Proof‑of‑Stake (PoS) model, along with EIP‑1559, provided the necessary technical backdrop for PBS. Validators can now choose to “slot” a block, and builders can submit block templates. The protocol incentivizes builders to give validators honest, efficient blocks—by rewarding them with a portion of the transaction fees (a “builder reward”) but also by exposing them to slashing if they submit deceitful blocks. The validator in turn receives a share of fees for honestly validating the proposal, plus potential rewards if they can mine or stake more.

The practical upshot? A system where honest behaviour is rewarded without giving any single entity the power to manipulate order. It’s like moving from a single kitchen countertop where one person can put all the ingredients wherever they want, to a shared pantry where each person only takes from a common stock of items.

The mechanics of a PBS block

1. Builders pull transactions from the mempool, prioritizing by fee, time sensitivity, or special agreements.
2. They arrange those transactions into a block, ensuring everything fits in the gas limit and respects the network’s rules.
3. Builders submit a block proposal—a cryptographic commitment that includes the transactions and the block header—to the validator set.
4. Validators verify the block against the chain state. If it is valid, they add it to the ledger.
5. Rewards flow back: builders keep a share of transaction fees; validators keep a share of that fee plus staking rewards.

Because the builder and proposer are separate, each is motivated to act honestly: builders want to get the most bang for the block size limit, and proposers want to maintain network integrity. The combination of these incentives creates a robust system that reduces MEV exploitation.

How did we get stuck in an MEV loop?

Before PBS, miners built their own blocks. They could easily front‑run a transaction: imagine someone placed a big buy order for a freshly minted token. A miner could place a tiny buy order for the same token first, driving up the price just enough to sell their own holding at a profit just before the big order executed. In a PoW world, the ability to mine a block was the currency. In PoS, validators had to stake—still valuable but far less volatile—but the temptation to extract value was still present.

Another common practice was priority gas auctions: people would pay extra to have their transactions included sooner, often at the cost of other users. The same miner could favor a particular builder or DApp, granting them better timing or higher fees, in exchange for slippage or collusion. For everyday investors, this meant their trades could be delayed, the price could slip, or they could miss out on a favorable opportunity—all while the system, in theory, should have been democratized.

Why PBS matters for non‑technical investors

You might think, “I’m not a developer, I just hold a few tokens.” That’s the first part of the answer: you are not alone. The way the protocol is set up, PBS has ripple effects that reach even your wallet screen.

• Reduced slippage: By limiting the power of a single block constructor, price impact caused by front‑running is mitigated.
• Fairer fee market: Builders submit honest bids; validators cannot game the fee structure for themselves.
• Transparency: With separate duties, you can audit and see how a block was composed (the builder’s source code is often open source).

But PBS is not a silver bullet. It introduces new considerations. You’ll need to understand that builders, though separated from validators, still compete amongst themselves. Some large builders have gained a reputation for higher throughput and lower latency, and those will attract more traffic. For a casual investor, this simply means picking reputable DApps and using reliable interfaces that are built on top of trustworthy builders.

The human side: how the fear turned into cautious optimism

I remember watching the early days of MEV with a growing sense of dread. I had just written a small article about “how to think about crypto risk” for a local community newsletter. The readers loved the piece, and a number of them reached out asking if they should be worried about being front‑run. I told them: “Focus on the fundamentals first. If the token has real utility and solid fundamentals, price manipulation is less of a big deal compared to, say, a one-month supply drop causing a temporary price spike.”

Then came PBS. That shift changed the narrative. I rewrote the newsletter piece with a new paragraph about how protocol design can reduce the risk. I mentioned that, in principle, PBS should make block building more efficient, and thus less likely to be abused. I warned them that they should still pay attention to network congestion and that they might choose DApps that route trade through builders that are known for low slippage.

For me, the real lesson was humility: my earlier skepticism about protocol changes was misplaced when I saw the community building consensus from different layers—consensus, builder, and user interfaces—to achieve a more equitable market. The message was that we can engineer fairer systems, but they need community oversight and continuous improvement.

Spotting PBS in practice

You may wonder, “How do I know if the network I use implements PBS?” That’s a practical question with a concrete answer. Here are three signals that point toward PBS:

• Public transparency logs: If the protocol publishes block proposal submissions and the identities of builders, you can trace them.
• Builder reward data: Some networks show how much each builder earned per block. A balanced reward system suggests active competition.
• DApp documentation: Reputable DApps mention they use builders like Flashbots or other PBS‑capable systems.

If you’re using a wallet, simply look for the “pool” you’re using. Many wallets offer options to connect to a custom provider. If you opt for one that advertises PBS—usually with a mention of “builders” or “MEV protection”—you’re likely on a fairer path.

A quick metaphor: The garden of DeFi

Think of the Ethereum network as a shared garden. In the before‑PBS era, a single gardener held the shovels, deciding which plants to dig up and where to put new seeds. If that gardener disliked a certain plant, they could bury it or bury the soil in front of it, preventing it from growing. The garden’s health suffered. Today’s PBS is like hiring a separate landscaper and a separate gardener. The landscaper plants and designs, while the gardener maintains and secures the plot. They both have an interest in the garden's general health—so the garden can thrive, and each plant can flourish based on its merit, not on who the gardener likes.

The action plan: what you can do now

1. Research the builders you interact with. If you’re staking or using a DApp, find out if they connect to a PBS‑compatible builder.
2. Use transaction fee estimators that take into account current network congestion. Many wallets have built‑in estimators that are now aware of PBS incentives.
3. Watch for builder reward disclosures when a block is mined. Some block explorers now display builder payouts; a sudden drop can signal a shift in the market that might affect slippage.

In essence, being mindful of PBS means being aware of the chain of custody of your transactions—who pulls them, how they’re bundled, and who gets to write the official ledger.

The take‑away

PBS is a sophisticated choreography between builders and proposers meant to reduce the dark art of MEV and bring us closer to a fairer market. It’s another step away from the invisible gatekeepers that once held sway. The most important thing for everyday investors, however, is this: understanding that each layer—validator, builder, and DApp—plays a role. Stay curious; ask questions; keep yourself updated on protocol changes. Above all, remember that DeFi is a collective experiment; the more transparent we are, the safer it becomes for everyone.

We’re not simply waiting for a perfect system—it’s built over time, with people learning from mistakes and improving. By staying informed and engaging in thoughtful ways, we all play a part in that evolution.