MEV Beyond Arbitrage: How Searchers, Builders, and PBS Are Reshaping Ethereum Block Economic

Maximal Extractable Value (MEV) was once a niche trading concept but is now widely used in Ethereum trading. It began as an arbitrage between decentralized exchanges and is now a sophisticated way to manage supply chains. Since Ethereum has transitioned to proof-of-stake, MEV now directly affects opportunistic profits.

At the center of this change are three concepts, which we'll discuss in this article: MEV searchers, block builders, and Proposer-Builder Separation (PBS). If you’re an investor, it’s helpful to understand these principles and also the shift towards MEV.

MEV: What It Is and Why It Matters

MEV refers to the value that can be extracted from block production, beyond block rewards and fees. The value comes from controlling transaction ordering, inclusion, or exclusion within a block. The term once stood for miner-extractable value, but when Ethereum moved to a proof-of-stake model, it was reframed to reflect a broader set of actors.

In the beginning, MEV focused on using safe and secure crypto exchanges. It was created by buying an asset cheaply on one exchange and selling it for a profit on another. Later on, MEV was expanded to include liquidations, sandwich attacks, back-running trades, and complex multi-transaction bundles.

MEV is important because it reshapes incentives across the network. It influences gas prices, affects user transaction outcomes, and plays a growing role in validator profitability. MEV has also driven the rise of specialized intermediaries who extract value more efficiently than individual validators. It changed the very nature of Ethereum's block economy

The Role of Searchers in MEV

Searchers are the front-line actors in the MEV economy. They operate bots that continuously monitor private and public mempools on Ethereum. That way, the bots scan for profitable opportunities using pending transactions. Searchers construct transaction bundles designed to capture that value when an opportunity arises.

Modern searchers employ a far more complex strategy than simple arbitrage. These include: liquidation optimization in lending protocols, atomic arbitrage across multiple venues, and priority execution strategies. All of these efforts rely on precise transaction orderings. The key advantage of such an approach is the technical expertise and the speed with which transactions are executed.

Searchers use private transaction submission channels to avoid someone copying their strategy. They send bundles directly to block builders instead of broadcasting transactions publicly. In return, searchers pay fees or share a portion of their profit. This private coordination is what makes MEV a professionalized, high-stakes industry.

Block Builders: From Packer to MEV Extractor

Proposer-Builder Separation is the architectural change that enabled this new block production model. It allows for the role of proposing blocks to be separate from the role of building them. Validators no longer need to construct the blocks themselves; instead, they select from blocks built by external builders.

PBS is implemented off-protocol through MEV-Boost. It's a middleware solution that allows validators to outsource block construction while preserving consensus integrity. Builders submit blinded block bids, and proposers choose the most profitable option. They do so without seeing the full contents in advance.

The economic impact of PBS is significant. Validators gain access to revenue without having to run complex infrastructure. It means not only that the returns are higher, but also that they are more predictable. PBS also reduces the incentive for validators to take risks when it's not necessary.

On the negative side of things, PBS concentrates power at the builder layer. Validators remain decentralized, but builders aren't. This is where the potential for coordination and censorship lies. It means that PBS introduces new problems as it solves old ones.

Economic Dynamics and Incentive Shifts

The rise of searchers, builders, and PBS has changed the whole Ethereum landscape. Experts such as those from CCN claim that auction dynamics now drive production rather than any individual validator strategy. Builders bid aggressively to win proposer selection, compressing margins and passing value upward to validators.

Searchers compete for inclusion and pay fees to builders. The value, therefore, flows from users to searchers, from searchers to builders, and from builders to validators. A system set up in this manner is more efficient, but also favors well-capitalized participants.

Another significant result is the unequal distribution of MEV. A small number of searchers and builders capture most of the MEV profits. This raises questions about the long-term prospects of investing in Ethereum in this way, and as the industry evolves, it will have to address these issues.

Challenges and Criticisms

MEV faces criticism regardless of the efficiency it has shown when it comes to gains. The primary concern is centralization. A handful of builders dominate the block construction market and often rely on the same infrastructure. This creates a single point of failure that could damage the whole effort.

There's also a risk of censorship. Builders may choose to exclude transactions for regulatory, political, or economic reasons, especially when operating at scale. Validators depend on builders' bids for income, and their ability to resist censorship is limited. There's also a very high barrier to entry: builders require significant infrastructure and access to order flow.

The Future of MEV and Ethereum Block Design

Ethereum researchers are actively exploring protocol-level PBS, sometimes called enshrined PBS (ePBS). The goal of this research is to integrate proposer-builder separation directly into the consensus layer. It will reduce the reliance on external relays and improve decentralization.

Other efforts focus on redesigning MEV auctions to distribute value more evenly or to limit harmful strategies. There are also attempts to improve scaling, and some feel that MEV will shift from Layer 1 to Layer 2. The challenge lies in minimizing centralization while remaining efficient.

To Sum Up

MEV has shifted from an arbitrage tool to the most important feature of Ethereum's economic infrastructure. This was done through the rise of searchers and builders, and through Proposer-Builder Separation. Block production is now a highly optimized and auction-driven marketplace. The system adds complexity but delivers higher validator rewards.

As Ethereum continues to mature and become more complex, so will the protocol design and the research to make it more profitable. The biggest downside of this approach is its centralization, which can lead to censorship. Whether PBS ultimately strengthens or weakens decentralization will shape Ethereum's long-term resilience.