diff --git a/changelog/syjn99_builder-auth-data-hostname.md b/changelog/syjn99_builder-auth-data-hostname.md
new file mode 100644
index 000000000000..1ce1c693478d
--- /dev/null
+++ b/changelog/syjn99_builder-auth-data-hostname.md
@@ -0,0 +1,4 @@
+### Changed
+
+- Derive the default builder `auth_data` from the builder URL's hostname instead of the full URL bytes, per builder-specs#168.
+- Reject builder URLs without a hostname (`https://:8080`) or with a non-ASCII one. Internationalized hostnames must be punycode-encoded.
diff --git a/config/proposer/settings.go b/config/proposer/settings.go
index 4c1383d15ccc..e338ba99f6be 100644
--- a/config/proposer/settings.go
+++ b/config/proposer/settings.go
@@ -1,11 +1,14 @@
 package proposer
 
 import (
+	"encoding/binary"
 	"fmt"
+	"net/netip"
 	"net/url"
 	"slices"
 	"strings"
 	"sync/atomic"
+	"unicode"
 
 	"github.com/OffchainLabs/prysm/v7/config"
 	fieldparams "github.com/OffchainLabs/prysm/v7/config/fieldparams"
@@ -145,13 +148,42 @@ type BuilderEntry struct {
 	BuilderBoostFactor  *validator.Uint64 `json:"builder_boost_factor,omitempty" yaml:"builder_boost_factor,omitempty"`
 }
 
-// EffectiveAuthData resolves omitted auth_data to the spec convention:
-// the UTF-8 bytes of the builder's URL.
+// EffectiveAuthData resolves omitted auth_data to the spec default.
 func (be *BuilderEntry) EffectiveAuthData() []byte {
 	if len(be.AuthData) != 0 {
 		return be.AuthData
 	}
-	return []byte(be.URL)
+	u, err := url.Parse(be.URL)
+	if err != nil {
+		return nil
+	}
+	host := strings.ToLower(u.Hostname())
+	addr, err := netip.ParseAddr(host)
+	if err != nil || addr.Is4() {
+		// a name or an IPv4 literal is used as-is
+		return []byte(host)
+	}
+	if addr.Is4In6() {
+		// IPv4-mapped IPv6 address. Hand-wired here to match with the spec.
+		// Go's netip renders these in mixed notation (::ffff:192.0.2.1)
+		// while spec wants ::ffff:c000:201 (hex groups only).
+		//
+		// Their 16 bytes are always shaped like this:
+		//
+		//	bytes   0 .. 9    10, 11   12, 13   14, 15
+		//	        00 x 10   ff ff    |<-- IPv4 4 bytes -->|
+		//	groups  g1..g5=0  g6=ffff  g7       g8
+		//
+		// so 192.0.2.1 (c0 00 02 01) gives g7=0xc000, g8=0x0201 -> "::ffff:c000:201".
+		b := addr.As16()
+		return fmt.Appendf(
+			nil,
+			"[::ffff:%x:%x]",
+			binary.BigEndian.Uint16(b[12:14]), // g7
+			binary.BigEndian.Uint16(b[14:16]), // g8
+		)
+	}
+	return []byte("[" + addr.String() + "]")
 }
 
 // Spec limits for builder configuration payloads.
@@ -171,9 +203,21 @@ func (be *BuilderEntry) Validate() error {
 	if len(be.URL) > MaxBuilderURLSize {
 		return errors.Errorf("url exceeds %d bytes", MaxBuilderURLSize)
 	}
-	if u, err := url.Parse(be.URL); err != nil || u.Scheme == "" || u.Host == "" {
+	u, err := url.Parse(be.URL)
+	if err != nil || u.Scheme == "" || u.Host == "" {
 		return errors.New("url is not a valid URL")
 	}
+
+	// Check whether hostname is empty.
+	host := u.Hostname()
+	if host == "" {
+		return errors.New("url is missing a hostname")
+	}
+
+	// Check punycode: host must be ASCII.
+	if strings.IndexFunc(host, func(r rune) bool { return r > unicode.MaxASCII }) >= 0 {
+		return errors.New("url hostname must be ASCII; encode internationalized names as punycode")
+	}
 	if len(be.Pubkeys) > MaxBuilderPubkeys {
 		return errors.Errorf("builder_pubkeys exceeds %d keys", MaxBuilderPubkeys)
 	}
diff --git a/config/proposer/settings_test.go b/config/proposer/settings_test.go
index 21d7d2e72f98..cdfe0bdee8b0 100644
--- a/config/proposer/settings_test.go
+++ b/config/proposer/settings_test.go
@@ -823,7 +823,7 @@ func TestSettings_TargetGasLimit_Schedule(t *testing.T) {
 func TestSettingFromConsensus(t *testing.T) {
 	// Persisted payloads may predate url-required and (url, auth_data) uniqueness:
 	// url-less entries drop, (url, auth) duplicates keep the first, and an omitted
-	// auth_data compares as its derived value (the url's UTF-8 bytes).
+	// auth_data compares as its derived value (the url's hostname).
 	t.Run("dedups builders", func(t *testing.T) {
 		payload := &validatorpb.ProposerSettingsPayload{
 			Version: SchemaV2,
@@ -834,7 +834,7 @@ func TestSettingFromConsensus(t *testing.T) {
 						{Url: "https://b.example", AuthData: []byte("second")},
 						{Url: "https://b.example", AuthData: []byte("first")},
 						{Url: "https://other.example"},
-						{Url: "https://other.example", AuthData: []byte("https://other.example")},
+						{Url: "https://other.example", AuthData: []byte("other.example")},
 						{AuthData: []byte("url-less")},
 					},
 				},
@@ -1233,3 +1233,61 @@ func TestUpgradeToV2_DropsBuilderContent(t *testing.T) {
 	require.IsNil(t, ps.ProposeConfig[key].BuilderConfig)
 	require.Equal(t, false, ps.UpgradeToV2())
 }
+
+func TestBuilderEntry_EffectiveAuthData(t *testing.T) {
+	t.Run("derives the spec (builder-specs) default from the url hostname", func(t *testing.T) {
+		cases := map[string]string{
+			"https://builder.example.com/":             "builder.example.com",
+			"HTTPS://Builder.Example.com:443/bids?x=1": "builder.example.com",
+			"https://builder.example.com:8080":         "builder.example.com",
+			"https://user:pw@builder.example.com/":     "builder.example.com",
+			"https://10.0.0.5:18550/eth/v1/builder":    "10.0.0.5",
+			"https://[0:0:0:0:0:0:0:1]:8443/":          "[::1]",
+			"https://[::ffff:192.0.2.1]/":              "[::ffff:c000:201]",
+		}
+		for u, want := range cases {
+			t.Run(u, func(t *testing.T) {
+				require.Equal(t, want, string((&BuilderEntry{URL: u}).EffectiveAuthData()))
+			})
+		}
+	})
+
+	t.Run("explicit auth_data wins untouched", func(t *testing.T) {
+		be := &BuilderEntry{URL: "https://builder.example.com/", AuthData: []byte("custom")}
+		require.DeepEqual(t, []byte("custom"), be.EffectiveAuthData())
+	})
+}
+
+func TestBuilderEntry_Validate_Hostname(t *testing.T) {
+	tests := []struct {
+		name    string
+		url     string
+		wantErr string
+	}{
+		{
+			name:    "no hostname",
+			url:     "https://:8080",
+			wantErr: "url is missing a hostname",
+		},
+		{
+			name:    "non-ASCII hostname",
+			url:     "https://bü.example",
+			wantErr: "must be ASCII",
+		},
+		{
+			name: "valid punycode hostname",
+			url:  "https://xn--b-eha.example",
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			err := (&BuilderEntry{URL: tt.url}).Validate()
+			if tt.wantErr == "" {
+				require.NoError(t, err)
+				return
+			}
+			require.ErrorContains(t, tt.wantErr, err)
+		})
+	}
+}
diff --git a/validator/rpc/handlers_validator_config_test.go b/validator/rpc/handlers_validator_config_test.go
index 311b22085c26..f8d130c0b050 100644
--- a/validator/rpc/handlers_validator_config_test.go
+++ b/validator/rpc/handlers_validator_config_test.go
@@ -257,7 +257,7 @@ func TestServer_SetBuilderConfig(t *testing.T) {
 			"entry without url":                                 {`{"builders":[{"min_bid":"1"}]}`, "url is required"},
 			"pubkey-only entry":                                 {`{"builders":[{"builder_pubkeys":["` + bpk + `"]}]}`, "url is required"},
 			"same url and auth_data":                            {`{"builders":[{"url":"https://a"},{"url":"https://a"}]}`, "share the same url and auth_data"},
-			"omitted auth_data collides with its derived value": {`{"builders":[{"url":"https://a"},{"url":"https://a","auth_data":"` + hexutil.Encode([]byte("https://a")) + `"}]}`, "share the same url and auth_data"},
+			"omitted auth_data collides with its derived value": {`{"builders":[{"url":"https://a"},{"url":"https://a","auth_data":"` + hexutil.Encode([]byte("a")) + `"}]}`, "share the same url and auth_data"},
 			"invalid url":                                       {`{"builders":[{"url":"not a url"}]}`, "url is not a valid URL"},
 			"url too long":                                      {`{"builders":[{"url":"` + longURL + `"}]}`, "url exceeds 2048 bytes"},
 			"invalid builder_pubkeys entry":                     {`{"builders":[{"url":"https://a","builder_pubkeys":["0x1234"]}]}`, "builder_pubkeys contains an invalid BLS public key"},
@@ -309,7 +309,7 @@ func TestServer_SetBuilderConfig(t *testing.T) {
 }
 
 func TestServer_GetBuilderConfig(t *testing.T) {
-	// GET is fully resolved: omitted auth_data becomes the url's UTF-8 bytes, and
+	// GET is fully resolved: omitted auth_data becomes the url's hostname, and
 	// unset values become the runtime fallbacks (no floor, neutral boost, trustless-only).
 	t.Run("nil proposer settings resolve to runtime defaults", func(t *testing.T) {
 		srv, keys := setupConfigServer(t, 1)
@@ -333,7 +333,7 @@ func TestServer_GetBuilderConfig(t *testing.T) {
 		require.Equal(t, "0", *cfg.MinBid)
 		require.Equal(t, "100", *cfg.BuilderBoostFactor)
 		require.Equal(t, 1, len(cfg.Builders))
-		require.Equal(t, hexutil.Encode([]byte("https://a.example")), *cfg.Builders[0].AuthData)
+		require.Equal(t, hexutil.Encode([]byte("a.example")), *cfg.Builders[0].AuthData)
 		require.Equal(t, "0", *cfg.Builders[0].MinBid)
 		require.Equal(t, "100", *cfg.Builders[0].BuilderBoostFactor)
 		require.Equal(t, "0", *cfg.Builders[0].MaxExecutionPayment)
diff --git a/validator/rpc/structs.go b/validator/rpc/structs.go
index 180c57962e57..39c632d2087b 100644
--- a/validator/rpc/structs.go
+++ b/validator/rpc/structs.go
@@ -188,7 +188,8 @@ func (in *BuilderConfig) ToConsensus() (*proposer.BuilderConfig, error) {
 		return nil, errors.Errorf("builders exceeds %d entries", proposer.MaxBuilderEntries)
 	}
 	// Non-nil (possibly empty) list means "use exactly these builders", not "inherit".
-	// Omitted auth_data compares as its derived value, so it collides with the explicit form.
+	// Omitted auth_data compares as its derived value (the url's hostname), so it
+	// collides with the explicit form.
 	bc.Builders = make([]*proposer.BuilderEntry, 0, len(in.Builders))
 	seen := make(map[proposer.EntryIdentity]bool, len(in.Builders))
 	for i, entry := range in.Builders {