Practical Guide To PBS In Advanced DeFi Projects

Understanding how Proposer‑Builder Separation (PBS) can be woven into the fabric of advanced DeFi projects requires more than a surface‑level overview.
This guide walks through the essential concepts, architectural patterns, practical integration steps, and real‑world use cases that demonstrate how PBS can mitigate MEV‑related risks while enabling protocol innovation in advanced DeFi projects.

The MEV Landscape in Modern DeFi

Maximum Extractable Value (MEV) refers to the profit that can be captured by miners or validators through the ordering, inclusion, or exclusion of transactions within a block, a topic explored in depth in Exploring MEV and Protocol Integration in Advanced DeFi Projects.
In highly competitive environments such as automated market makers, liquidity pools, and lending protocols, MEV can reach millions of dollars per block.
While some MEV extraction techniques (e.g., front‑running or sandwich attacks) are malicious, others are neutral or even beneficial when they provide liquidity or correct arbitrage.

However, the concentration of MEV power in the hands of a few validators threatens:

• User trust – when users observe their transactions being reordered or excluded, confidence in the system erodes.
• Economic stability – large MEV payouts can create flash crashes or destabilize token prices.
• Protocol fairness – DeFi protocols that depend on predictable transaction ordering (e.g., fair launch or liquidity mining rewards) suffer.

PBS offers a framework that separates the role of block proposers from that of builders who assemble the transactions, thereby decentralizing the MEV extraction process and reducing its negative impact.

What Is Proposer‑Builder Separation?

PBS is a design pattern in which the proposer (the entity that submits the final block to the chain) and the builder (the entity that compiles and orders transactions) operate independently.
The proposer merely signs and submits the block that the builder has prepared, while the builder can use multiple sources to assemble a block that maximizes their own reward or follows protocol‑defined rules.

The key properties of PBS are:

1. Decoupling of roles – a validator can propose a block from any builder’s output, preventing a single entity from controlling both transaction selection and block submission.
2. Competition among builders – multiple builders can compete to provide the most profitable or most compliant block, driving efficiency and reducing collusion.
3. Transparent ordering – builders can publish transaction bundles and orderings before block finalization, allowing users and auditors to verify fairness.

In Ethereum’s Lido‑derived PBS implementation, for instance, the builder signs a bundle of transactions and forwards it to a proposer, as detailed in Proposer Builder Separation In Practice With Advanced DeFi Projects. The proposer then signs the block hash and submits it, ensuring that the proposer cannot reorder or exclude transactions arbitrarily.

Architectural Foundations for PBS‑Enabled DeFi

Before diving into integration steps, it is useful to map the high‑level architecture that underpins a PBS‑ready DeFi protocol.

1. Layer 1 (Chain) – PBS‑Compatible Consensus

The base blockchain must support an interface where a proposer can submit a signed block hash that refers to a bundle of transactions generated by a builder.
Ethereum’s “block builder API” and the “builder fee market” are examples of such interfaces.

2. Builder Network – Transaction Bundle Aggregation

Builders maintain a pool of pending transactions, often sourced from a DApp’s user‑initiated requests or from a liquidity aggregator.
They then:

• Rank transactions by MEV potential, fees, or protocol requirements.
• Cluster transactions into bundles that can be executed atomically.
• Sign the bundle and broadcast it to potential proposers.

Users interact with the DeFi protocol through a front‑end that submits transactions to the builder network.

3. Proposer Interface – Block Sign‑Off

Proposers receive signed bundles from builders and:

• Verify the integrity and compliance of the bundle.
• Sign the block hash and submit it to the chain.
• Optionally, apply a builder fee or commission.

4. User Front‑End – Bundle Submission

Users interact with the DeFi protocol through a front‑end that:

• Submits transactions to the builder network.
• Receives a signed bundle and a confirmation that the transaction will be included.
• Optionally, provides a builder fee to incentivize builders.

5. Auditing & Monitoring Layer – Transparency

A dedicated monitoring service observes:

• Bundle contents and ordering.
• Builder performance metrics (e.g., inclusion rates, latency).
• Proposer compliance with builder instructions.

These services help ensure that the PBS system remains trustworthy and that MEV is handled fairly.

Step‑by‑Step Integration Guide

Below is a practical roadmap for developers building an advanced DeFi protocol that leverages PBS.

Step 1: Confirm Chain Compatibility

Ensure the underlying blockchain implements a PBS‑friendly consensus.
If you are on Ethereum, verify that the network supports the Builder API and that the proposer can submit a signed block hash.
If you are on a custom chain, you may need to implement the following RPC endpoints:

• getBuilderBundle – fetches a pending transaction bundle.
• submitBlock – signs and submits a block hash.

Step 2: Design the Transaction Bundle Schema

Define a JSON‑based schema that represents a bundle of transactions.
Typical fields include:

{
  "transactions": [
    { "hash": "0xabc", "payload": "...", "gas": 21000, "value": 1 ether }
  ],
  "metadata": {
    "timestamp": 1690000000,
    "builderID": "builder-42",
    "protocolID": "mydefi-protocol"
  }
}

The schema should be versioned to allow backward compatibility as the protocol evolves.

Step 3: Implement the Builder Service

Create or integrate with a builder that can:

1. Collect Transactions – gather user‑submitted transaction requests from your front‑end.
2. Bundle and Order – group them into atomic bundles based on MEV potential, gas cost, and protocol rules.
3. Validate – ensure no transaction violates protocol constraints (e.g., double spends, unauthorized actions).
4. Sign – apply your builder’s cryptographic signature to the bundle.
5. Publish – expose the signed bundle through an RPC endpoint for proposers to consume.

You may choose to run multiple builder instances to foster competition and reduce single points of failure.

Step 4: Build the Proposer Adapter

Develop a small service that:

1. Requests the latest bundle from the builder network.
2. Verifies the signature and contents.
3. Signs the block hash that the chain expects.
4. Submits the block to the chain via the submitBlock RPC.

Because the proposer does not control transaction ordering, you can implement fallback logic: if a proposer receives an invalid or malicious bundle, it can reject it and request a new one.

Step 5: Update the User Front‑End

Modify your UI so that when a user submits a transaction:

1. The transaction is sent to the builder service.
2. The front‑end waits for a signed bundle confirmation.
3. The user is notified that the transaction is scheduled for inclusion.

Optionally, provide a builder fee field that the user can set to encourage builders to prioritize their transaction.

Step 6: Implement Auditing and Transparency

Launch a dashboard that displays:

• Current active builders and their performance.
• Bundle contents for each block, including transaction order.
• Metrics such as latency from transaction submission to inclusion, builder fee paid, and total MEV captured by each builder.

Open‑source the audit tools so that the community can verify compliance and help detect any abuse.

Step 7: Conduct Security and Performance Testing

Perform the following tests before mainnet launch:

Step 8: Deploy and Iterate

Deploy the builder network, proposer adapter, and front‑end to the live network.
Collect real‑world data, adjust builder scoring algorithms, tweak builder fees, and optimize the bundle generation logic to improve inclusion rates and fairness.

Real‑World Use Cases of PBS in Advanced DeFi

1. Automated Market Makers (AMMs)

In a large AMM, each trade may trigger a cascade of events: a swap, a liquidity provision, a fee collection, and a rebalance.
PBS allows the AMM to bundle all these actions into a single transaction group, ensuring atomic execution and preventing front‑run attempts that could profit from partial executions.

2. Cross‑Chain Liquidity Pools

Protocols that bridge assets across chains face latency and ordering challenges.
By employing PBS, a builder can aggregate cross‑chain swap requests, order them optimally, and submit them to the proposer, who then finalizes the block.
This reduces the risk of sandwich attacks that exploit the time gap between the source and destination chains.

3. Yield‑Optimizing Protocols

Yield aggregation services often need to route a user’s funds through multiple protocols to maximize returns.
PBS lets builders bundle all underlying calls into one block, avoiding the cost of multiple separate transactions and protecting against price slippage that could be exploited by MEV bots.

4. Governance and Token Distribution

When distributing governance tokens, timing can affect voting power.
PBS ensures that all distribution transactions are ordered fairly, preventing a malicious validator from front‑running and manipulating the distribution schedule.

Risks and Mitigations

Future Directions

• Standardized Builder APIs – The DeFi ecosystem will benefit from a unified builder interface that allows protocol developers to plug in any builder without custom integrations.
• Real‑Time MEV Disclosure – Tools that publicly disclose MEV captured per block can pressure builders to act transparently.
• Dynamic Fee Markets – Instead of fixed builder fees, dynamic markets that price builder services based on demand could emerge.
• Cross‑Chain PBS – Extending PBS concepts to sharded or cross‑chain architectures will unlock new DeFi possibilities.

Takeaway

Proposer‑Builder Separation offers a powerful mechanism to tame MEV, enhance protocol fairness, and empower users in advanced DeFi ecosystems.
By carefully integrating PBS—ensuring chain compatibility, designing robust bundles, deploying competitive builders, and maintaining transparency—developers can create resilient DeFi projects that stand the test of high‑stakes transaction ordering.

The path from theory to practice requires disciplined architecture, rigorous testing, and community oversight.
When executed correctly, PBS transforms the MEV landscape from a zero‑sum battlefield into a cooperative marketplace that benefits users, builders, proposers, and the protocol itself.