MEV Capture and Decentralization in Execution Tickets

Paper: arXiv 2408.11255

Abstract

We provide an economic model of Execution Tickets and use it to study the ability of the Ethereum protocol to capture MEV from block construction. We demonstrate that Execution Tickets extract all MEV when all buyers are homogeneous, risk neutral and face no capital costs. We also show that MEV capture decreases with risk aversion and capital costs. Moreover, when buyers are heterogeneous, MEV capture can be especially low and a single dominant buyer can extract much of the MEV. This adverse effect can be partially mitigated by the presence of a Proposer Builder Separation (PBS) mechanism, which gives ET buyers access to a market of specialized builders, but in practice centralization vectors still persist. With PBS, ETs are concentrated among those with the highest ex-ante MEV extraction ability and lowest cost of capital. We show how it is possible that large investors that are not builders but have substantial advantage in capital cost can come to dominate the ET market.

Complexity vs Empirical Score

• Math Complexity: 7.0/10
• Empirical Rigor: 3.0/10
• Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper presents a formal economic model with equilibrium analysis, Propositions, and theoretical derivations about MEV capture under risk aversion and heterogeneity, indicating high mathematical complexity. However, it lacks empirical validation, backtesting, or implementation-heavy data, focusing instead on a theoretical framework without real-world datasets or performance metrics.

Research Flowchart

  flowchart TD
  A["Research Goal:<br>Evaluate Execution Ticket (ET)<br>MEV capture and decentralization"] --> B["Methodology:<br>Economic Model & Game Theory"]
  
  B --> C["Key Inputs & Assumptions:<br>• Homogeneous vs. Heterogeneous Buyers<br>• Risk Neutrality/Aversion<br>• Capital Costs<br>• PBS Mechanism"]
  
  C --> D["Computational Process:<br>• Model MEV extraction incentives<br>• Analyze equilibrium strategies<br>• Simulate ET market dynamics"]
  
  D --> E
  
  subgraph E ["Key Findings/Outcomes"]
      F["Homogeneous Buyers:<br>ETs extract 100% MEV<br>(w/o risk/capital costs)"]
      G["Heterogeneity & Costs:<br>MEV capture drops;<br>Dominant buyers emerge"]
      H["PBS Mitigation & Limits:<br>Partial solution but<br>centralization persists<br>(High MEV/Low Cost capital wins)"]
  end

Cited References (21)

1. Economics of ethereum (2024)
2. The Evolution of Decentralized Exchange: Risks, Benefits, and Oversight (2024)
3. The specter (and spectra) of miner extractable value — → 2310.07865
4. Flash boys 2.0: Frontrunning in decentralized exchanges, miner extractable value, and consensus instability (2020)
5. Efficient Rollup Batch Posting Strategy on Base Layer (2022) — link
6. MEV Documentation (2024)
7. Ethereum’s Proposer-Builder Separation: Promises and Realities (2023) — link
8. Centralization in Block Building and Proposer-Builder Separation (2024) — link

1 of 21 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.