Ethereum MEV auctions fail when builders defect after seeing bids

A new arXiv paper by Adadurov, Barseghyan, Chtepine, Eloranta, Sebyakin, and Valitov tackles a fundamental flaw in Ethereum block-building auctions for maximal extractable value (MEV). In these sealed-bid auctions, searchers submit bundles to builders, but nothing prevents the builder from observing the winning bid and then defecting—either running the MEV themselves or frontrunning it. The authors formalize this commitment problem with a probabilistic model: a builder defects with probability ε and, upon defection, replicates a type-specific fraction γ(τ) of the winning MEV opportunity. Searchers anticipate this and choose between a risky first-price bid and a safe “deterrence” bid that makes frontrunning unprofitable. The resulting equilibrium is piecewise, and the cost of imperfect commitment depends jointly on the replicability of the MEV type and the level of competition among searchers.

Empirically, the team leverages the libmev dataset to estimate γ(τ) from right-tail bribe plateaus—the highest bribes that searchers are willing to pay before the builder would defect. Their decomposition reveals sharp heterogeneity across MEV categories: sandwich opportunities already exhibit high competition and low defection surplus, meaning builders gain little from defecting on them. In contrast, naked arbitrage and liquidation MEV leave substantially more surplus that a defecting builder could capture, making those auctions more vulnerable. The results imply that credible MEV auction design requires not only a proper auction format (e.g., commit-and-reveal schemes) but also protocol-level constraints on the builder’s ability to use observed bid and payload information ex post. Without such constraints, the auction itself cannot guarantee fair execution, and searchers will bid less aggressively, reducing total MEV extraction efficiency on Ethereum.