To Compete or To Collude: Builder Incentives in MEV-Boost Auctions

This paper employs empirical game-theoretic analysis (EGTA) to examine builders' incentives for strategic bidding in MEV-Boost auctions under the current Proposer-Builder Separation (PBS) framework. Our results suggest that under the ideal conditions of a builder market that lead to decentralization, builders are incentivized to collude rather than compete, contributing to low efficiency in the MEV-Boost auction. We show that latency advantage incentivizes builders to bid strategically to maximize their profit. Additionally, we show that advantages in private orderflow access can incentivize builders to refuse collusion and dominate the market. Furthermore, we demonstrate that the relay enforcement of rejecting new bids after the beginning of the slot, as a mitigation for timing games, impacts builders' strategic bidding incentives. Through our analyses, we highlight the challenge of creating a decentralized yet competitive builder market.