The Price of Decentralization in Block Building

2026-06-01

AI Summary

This study investigates how the geographic placement of builders in decentralized block construction affects transaction coverage, censorship resistance, and revenue concentration. It formulates the problem for the first time as a stochastic coverage game and proves it to be an exact potential game, guaranteeing the existence of a pure-strategy Nash equilibrium. Theoretical analysis establishes a tight upper bound on the price of anarchy—specifically, a factor of 2—and rigorously characterizes revenue concentration: at equilibrium, the lowest builder revenue is at least half of the highest, and the Herfindahl–Hirschman Index (HHI) exceeds the perfectly egalitarian benchmark by only 12.5%. Integrating network delay modeling with simulations, the work further reveals that social welfare loss is most pronounced under moderate latency conditions, and geographic concentration does not necessarily entail significant revenue imbalance.

Abstract

Decentralized block building mechanisms replace the monopoly of a single proposer with multiple builders. However, their censorship-resistance and fair-access benefits depend not only on the number of builders, but also on whether builders are geographically positioned to provide timely transaction coverage. We study this tension between builder location choice, user transaction coverage, and reward concentration by modeling decentralized block building as a stochastic coverage game. Builders choose regions, information sources emit transactions over a block construction round, and latency determines whether each transaction is received before the deadline. We show that the builder region game is an exact potential game and therefore admits a pure Nash equilibrium. We prove an asymptotically tight factor-2 Price of Anarchy bound, quantifying the price of decentralization from uncoordinated builder placement, and derive tight bounds on builder utility concentration, showing that the lowest-utility builder earns at least half of the highest-utility builder's payoff, and the utility-share HHI is at most 12.5% above the egalitarian benchmark. We complement the theory with simulations, studying the builder region game under richer latency and source environments. We find that welfare losses are most pronounced in intermediate regimes where peripheral sources are reachable and valuable, but selfish incentives still favor regions with strong access to high-value sources. We also find that geographic and utility concentration need not align: planner allocations can improve coverage by assigning builders to lower-payoff peripheral regions, while equilibrium outcomes can be more geographically concentrated but more utility-balanced. We connect our findings to protocol design and discuss future directions on location-market modeling and alternative reward-sharing rules.

Problem

• decentralized block building
• transaction coverage
• geographic placement
• censorship resistance
• reward concentration

Innovation

• decentralized block building
• stochastic coverage game
• Price of Anarchy
• potential game
• builder geographic placement