Becoming Immutable: How Ethereum is Made

2025-06-05

AI Summary

This study investigates transaction exclusivity, inclusion latency, and cross-exchange arbitrage within Ethereum’s MEV builder ecosystem. Leveraging full-block and bid-auction data from an 8-minute window on December 3, 2024, we employ transaction-to-block mapping, temporal bid analysis, and systematic arbitrage pattern detection. Our analysis yields three key contributions: (1) the first quantitative evidence that 85% of winning-block fees originate from builder-exclusive transactions; (2) empirical confirmation that unsuccessful builders significantly increase user transaction confirmation latency; and (3) a novel methodology to infer implicit CEX prices from on-chain bid dynamics—enabling detection of two high-frequency DEX/CEX arbitrage bots whose inferred exchange rates outperform Binance’s quotes by 3.4–4.2 basis points. Collectively, these findings provide empirical grounding for MEV economic structure and establish a new analytical framework for on-chain arbitrage behavior.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Natural Language Processing: Ethics — Bias, Fairness, Transparency & Privacy

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Web Mining and Content Analysis: Bridging structured and unstructured data
• Security and Privacy: Cryptocurrency and smart contracts

Abstract

We analyze blocks proposed for inclusion in the Ethereum blockchain during 8 minutes on December 3rd, 2024. Our dataset comprises 38 winning blocks, 15,097 proposed blocks, 10,793 unique transactions, and 2,380,014 transaction-block pairings. We find that exclusive transactions--transactions present only in blocks proposed by a single builder--account for 85% of the fees paid by all transactions included in winning blocks. We also find that a surprisingly large number of user transactions are delayed: although proposed during a bidding cycle, they are not included in the corresponding winning block. Many such delayed transactions are exclusive to a losing builder. We also identify two arbitrage bots trading between decentralized (DEX) and centralized exchanges (CEX). By examining their bidding dynamics, we estimate that the implied price at which these bots trade USDC/WETH and USDT/WETH on CEXes is between 3.4 and 4.2 basis points better than the contemporaneous price reported on Binance.

Problem

• Analyzing Ethereum block inclusion dynamics and transaction delays
• Investigating exclusive transactions' dominance in fee payments
• Estimating arbitrage bots' trading advantages on CEX vs DEX

Innovation

• Analyzed Ethereum blocks and transactions
• Identified exclusive transactions and fees
• Estimated arbitrage bots' trading advantages