Artificial Latency in PBS Context: Impact on Validator Income

In this article, we delve into the intricacies of Ethereum’s decentralized network, specifically focusing on two critical concepts: Builder-Validator Separation (PBS) and latency games. PBS enables hobbyists to run validators at a competitive cost, allowing complex transactions to be processed efficiently. Latency games, however, create challenges for smaller nodes, as they must compete with sophisticated builders who can exploit the network for their advantage.
To simplify these concepts, imagine a construction project where builders (sophisticated entities) and proposers (hobbyists) collaborate to create blocks. The builders design the block’s layout, while the proposers sign off on its contents without knowing what lies within. This commit-and-reveal scheme ensures that validators (smaller nodes) cannot alter the content of a builder’s block but can still commit to proposing it.
Now, let’s dive deeper into latency games. Imagine a race where each participant tries to be the first to cross the finish line. The faster you run, the more likely you are to win. In Ethereum’s case, the finish line is when a transaction is successfully processed. To stay ahead of the competition, builders must optimize their bids (transactions) to minimize latency, as they compete with other builders for the chance to construct the most valuable blocks.
This leads us to understand that even sophisticated node operators engage in a zero-sum game, where the revenue captured from validators serves as seed capital. In simpler terms, if you’re not optimizing your bids to minimize latency, you risk falling behind and losing out on potential profits.
To illustrate this point further, consider a scenario where a builder places a new bid not to outcompete others but rather to effectively supersede a previously leading bid. This could be relevant when the opportunity to exploit dissipates quickly.
In conclusion, Ethereum’s PBS and latency games create an environment where sophisticated builders can exploit the network for their advantage, while smaller nodes face challenges in staying competitive. To succeed, it’s crucial to understand these concepts and adapt strategies to minimize latency and capture valuable opportunities.