  The current Proposer-Builder Separation (PBS) equilibrium has several
builders with different backgrounds winning blocks consistently. This paper
considers how that equilibrium will shift when transactions are sold privately
via order flow auctions (OFAs) rather than forwarded directly to the public
mempool. We discuss a novel model that highlights the augmented value of
private order flow for integrated builder searchers. We show that private order
flow is complementary to top-of-block opportunities, and therefore integrated
builder-searchers are more likely to participate in OFAs and outbid non
integrated builders. They will then parlay access to these private transactions
into an advantage in the PBS auction, winning blocks more often and extracting
higher profits than non-integrated builders. To validate our main assumptions,
we construct a novel dataset pairing post-merge PBS outcomes with realized
12-second volatility on a leading CEX (Binance). Our results show that
integrated builder-searchers are more likely to win in the PBS auction when
realized volatility is high, suggesting that indeed such builders have an
advantage in extracting top-of-block opportunities. Our findings suggest that
modifying PBS to disentangle the intertwined dynamics between top-of-block
extraction and private order flow would pave the way for a fairer and more
decentralized Ethereum.
