In the blockchain ecosystem, the growing challenge of MEV (Maximum Extractable Value) has significantly impacted both the fairness of decentralized applications (dApps) and user experience. To address this issue, Application Specific Sequencing (ASS/A2S) has been proposed to minimize the negative impacts of MEV through more refined transaction ordering mechanisms. This aims to revitalize dApps while providing more favorable infrastructure for the emergence of next-generation killer consumer applications in the ecosystem.

PBS (Proposer-Builder Separation) - An Attempt to Mitigate MEV

We know that when users delegate block production rights to a single role, they must place considerable trust in that role, assuming they won't censor transactions (including re-ordering, forced inclusion/exclusion, etc.). Therefore, PBS was proposed to distribute and itemize power to some extent, thus mitigating the network damage caused by toxic MEV (such as front-running and sandwich attacks).

How does it work?

First, in PBS, the network distributes the original block building and block proposing capabilities to two different network roles: Builder and Proposer. Builders construct blocks according to different strategies, then forward them to Proposers who select and finally submit blocks to the chain.

Of course, this is just the simplest original design. In practical applications, additional components are introduced, for example, Searchers who detect MEV opportunities in the mempool, Relay components that ensure Validators/Proposers don't reorder transactions again, also users can customize their RPC endpoints and use protocols like MEV-Boost to help reduce the risk of toxic MEV losses.

The Problem We Met in PBS Architecture

Currently, MEV issues haven't received much attention in most Rollups/L2s because the majority of them rely on a centralized sequencer (controlled by the team) during operation, and their mempool is private. This setup maximally reduces potential MEV-related losses for users, but it requires increased trust assumptions in the project team.

However, centralized sequencers won't be a permanent solution, as users will never stop pursuing decentralization and free trading. Therefore, as Rollups/L2s gradually evolve, the problems currently seen on Ethereum L1 will likely repeat themselves on Rollups/L2s.

Current Explorations in This Area on Ethereum L1

As the Ethereum network continues to evolve, concerns over proposer centralization and associated censorship risks have become increasingly prominent. To address this challenge, the community has innovatively introduced the concept of Multiple Concurrent Proposers (MCP), aimed at enabling parallel block proposals from multiple proposers on Ethereum L1, thereby enhancing network decentralization.

In the MCP model, validators maintain k parallel copies of the chain, enabling k proposers to simultaneously submit block proposals. The transactions from these independently proposed blocks are subsequently merged into an unordered transaction pool, representing the union of all transactions contained within the k blocks. This innovative architecture enables multiple proposers to participate in block construction synchronously, effectively diluting any single proposer's control over transaction ordering and thus reducing the systemic risks associated with proposer centralization.

This mechanism not only distributes block proposition power more broadly, enhancing network security and censorship resistance, but also effectively mitigates the MEV issues arising from proposer monopolization. Through this approach, the Ethereum network moves toward a more democratized and resilient block production process.

Current Explorations in This Area on L2s/Rollups

Currently, MEV extraction in L2s primarily occurs through two mechanisms: latency wars and transaction spamming. In short, Latency wars represent a sophisticated MEV extraction strategy where participants locate proposers' physical addresses to optimize network routing and minimize interaction delays, thereby increasing their transaction inclusion probability. These practices not only impose significant performance overhead on L2s but also result in inefficient MEV value capture. Consequently, developing optimized MEV handling mechanisms remains crucial for the healthy development of the L2 ecosystem.

It is encouraging to see that several advanced Rollups/L2s projects have proposed innovative research and implementation solutions for MEV protection.

First, research indicates that FCFS (First-Come, First-Served) serves as a transaction ordering algorithm that can partially mitigate MEV attacks. By processing transactions strictly in the order they are received, this mechanism effectively reduces the risk of front-running attacks. However, due to inherent network latency and technical limitations in node time synchronization, consensus protocols purely based on FCFS may still be vulnerable to transaction order manipulation.

On the implementation front, Arbitrum's Timeboost mechanism offers an innovative solution. This mechanism introduces a bid-based ordering strategy that allows users to compete for priority transaction processing rights through an auction system, gaining access to an "Express Lane". Successful bidders receive priority processing within specific time windows, enabling them to capture arbitrage opportunities. Timeboost's design philosophy aims to reduce the negative externalities of latency competition while redistributing a portion of MEV profits back to the ecosystem.

Additionally, Mantle's Fair Sequencing proposal presents a unique approach. This solution combines Verifiable Random Functions (VRFs) and Zero-Knowledge Proofs (ZK Proofs) to ensure randomness and fairness in transaction ordering. Through the deployment of a decentralized sequencer network and verifiable random mechanisms, Mantle strives to prevent front-running and sandwich attacks, thereby enhancing transaction censorship resistance and user fairness.

The Challenge of Equitable MEV Profit Distribution

While PBS was designed to mitigate MEV issues, significant imbalances persist in its practical implementation, particularly in the distribution of non-toxic MEV profits. Under the current PBS framework, Validators command a dominant position, capturing approximately 90% of the total revenue.

Searchers, as the original discoverers of MEV opportunities, employ sophisticated on-chain analysis and technical expertise to identify potential arbitrage opportunities. However, to secure block inclusion, they are compelled to share substantial portions of their profits with Builders, Relays, and Proposers. This multi-layered distribution mechanism significantly dilutes Searchers' actual returns, creating a marked imbalance in value capture.

In contrast, the Intent-driven ecosystem offers a more effective solution to this challenge. By introducing off-chain Solvers, users' transaction intents can receive direct quotes from Solvers, enabling more efficient price discovery and reducing profit extraction by intermediaries, thereby optimizing the revenue distribution structure. For a deeper understanding of the Intent paradigm, we invite you to refer to our previously published blog posts.

The Evolving Demands of dApps

As dApps continue to mature, their business models and technical requirements are undergoing significant transformation. In the DeFi sector, stakeholder interests have become increasingly complex: Users expect compensation for their order flow, dApps aim to retain transaction value, while searchers and builders pursue higher profits. This multi-stakeholder dynamic often results in minimal profits or even losses for end users and dApps, driving many to transition into application-specific blockchains (AppChains) for more stable revenue streams.

This strategic pivot represents a multi-dimensional decision, enabling dApps to access comprehensive revenue sources including transaction fees, execution profits, and MEV earnings. The transformation is driven by two core considerations.

From an economic perspective, becoming an AppChain enables dApps to maintain comprehensive control over transaction ordering and MEV distribution, achieve precise pricing of network resources, and secure independent block space reservation rights. This transformation ensures projects can maximize their economic value and establish sustainable revenue models.

On the technical customization front, the AppChain model offers dApps unprecedented flexibility. They can implement custom operation codes, deploy precompiled contracts, select specific cryptographic algorithms, adopt customized virtual machines, and adjust network scale according to their specific business requirements. This deep customization capability allows dApps to build infrastructure that perfectly suits their application scenarios.

Summary

Throughout this post, we've examined the limitations of PBS in Ethereum's architecture. While PBS aims to address certain MEV-related challenges, we've identified several key drawbacks in its current implementation, particularly in terms of block building centralization and efficiency concerns. These inherent limitations of PBS point us toward a potentially more promising direction: Application-specific sequencing. In our next post, we'll explore how this alternative approach could address the shortcomings we've discussed, offering a more tailored and efficient solution for different types of applications built on Ethereum.

Stay tuned as we dive into the mechanics of application-specific sequencing and its potential to reshape transaction ordering in the Ethereum ecosystem.