Why Location Choice Matters
Joint work with @m1kuwill, @luiscorreia, @syang, @BrunoMr, and Stefanos Leonardos
Full post: https://writings.flashbots.net/why-location-choice-matters
TL;DR
With multiple MCP protocols in the design and implementation phases, we think it is timely to discuss how location choice interacts with protocol design to achieve efficient, fair, and censorship-resistant functioning in these systems. In Price of Decentralization in Block Building, we tackle this problem and answer the question: will the location choices of multiple self-interested proposers improve access for geographically distributed users and transaction sources? Modeling decentralized block building as a stochastic coverage game, in which builders choose geographic regions and information sources emit transactions over the course of a block-construction round, we study the welfare and utility concentration properties of this system. To analyze when welfare losses arise in concrete instances, we develop a simulator and compare self-interested equilibrium outcomes with centralized-planner benchmarks across a set of controlled simulation environments.
Future research directions
With this paper, we scratch the surface of the interaction between multi-proposer protocol design, geographic region selection, and welfare and concentration implications. Overall, we provide both theoretical and empirical evidence on why protocol design should consider the location-choice dimension of this problem in designing efficient, fair, and censorship-resistant systems that serve geographically distributed users. As multiple MCP protocols are currently being designed and implemented in industry, we believe our work is timely and hope it ignites the necessary discussions in the community.
We provide a list of research items that we find important to tackle next:
- Studying the implications of alternative reward-sharing rules: A key driver of location choice is how rewards are shared for covered transactions. Under the equal-split rule we adopt, only the builders who cover a transaction share the reward symmetrically. Yet, alternative rules could have different welfare and fairness implications. A non-exhaustive list of such rules would be:
- Winner-takes-all: Only the unique includer is rewarded; if multiple builders include the same transaction, no reward is given (e.g., the reward is burned). This can reduce duplicate inclusion while also strengthening incentives for exclusivity, private routing, and reward concentration.
- Committee-level sharing: Rewards are equally split among all builders, not only the includers. This may encourage builders to maximize aggregate source coverage, but can create free-riding incentives if rewards are paid to builders that do not contribute to coverage.
- Tullock-style proportional sharing: Rewards are split according to contribution scores, such as source-builder propagation latency, where the builder with the highest inclusion probability gets the largest share. The equal-split rule can be viewed as the uniform-score special case of proportional sharing. Such rules interpolate between egalitarian sharing and winner-takes-all allocation.
- Measuring order-flow geography: Our simulation employs stylized source locations and value-distribution configurations. This can be improved via empirical calibration based on estimates of order-flow geography (e.g., where users send transactions from and where high-value sources, such as DEXes, are located).
- Integrating consensus and communication details: We model source-builder latency directly and use a common deadline for transaction reception. In reality, protocols may involve peer-to-peer propagation, intermediaries like relays, and consensus actors such as attestation committees and aggregation leaders. These features would affect the timing sensitivity of regions and would require a richer model of consensus-layer and network communication.
- Studying Sybil behaviour: Depending on the protocol’s reward-sharing rule, builders can be incentivized to form coalitions to improve profits by avoiding redundant, inefficient coverage. The implications of such coalitions are worth studying, as they can improve welfare, but also undermine the censorship-resistance benefits of decentralized block building by behaving as a single economic entity.