What Is MEV?
MEV refers to profits miners can extract from reordering or censoring transactions in a block. As a result, it has become a major concern for the Ethereum community, particularly during times of high network congestion. With recent rise of meme coins and other decentralized finance (DeFi) applications, MEV activity has become even more rampant leading to skyrocketing gas prices and diminished returns for everyday users.
The Bankless team states that The MEV-burn upgrade aims to address this issue by creating a mechanism to burn the MEVs extracted from mining activities on Ethereum’s blockchain. This would help align miners’ incentives with those of rest of ecosystem while reducing overall supply making it more scarce and therefore valuable.
Why Do We Need an Upgrade Like Mev-Burn?
According to reports released by analysis firm Bankless Team, there have been some 566k ETH extracted from ordinary users due to this phenomenon; hence why we need upgrades like Mev-Burn
MEV bots engage in competitive attacks like frontrunning, DDOS attacks, eclipse attacks and chain reorgs all in pursuit of big MEV bounty creating an exploitable market that undermines the neutrality of block validators leading to distorted market incentives and reduced security for network.
The Solution To The Problem Of Mev In Ethereum Network
Ethereum developers are working on a multi-year roadmap which includes the implementation of the MEV-Burn upgrade to address this issue. This aims to return value being extracted by MEV participants back to ETH holders by burning it, indirectly redistributing value and reducing sell pressure by block validators.
In addition to redistributing value, MEV-Burn aims to reduce chain instability by equalizing MEV profits for block builders. This is known as “MEV-smoothing,” which seeks to create a more predictable and stable market for MEV profits rather than the current “big-game hunting affair.”
However, quantifying MEVs and determining how much can be burned or smoothed out remains a challenge. According to Bankless analysis, Ethereum protocol needs another major upgrade known as proposer-builder separation (PBS) completed first before finding an efficient way of quantifying MEVs based on how much block proposers are willing to pay for them in an efficient market.
The Role Of Proposer-Builder Separation In Mev-Burn Upgrade
PBS splits traditional validator role into two separate roles: proposers and block builders with goal of preventing simultaneous selection and ordering transactions included in blocks. Division of labor strips off ability from block builders engaging in transaction discrimination that forms essence of Mev.
Conclusion
The implementation of upgrades like the proposed Mev-burn upgrade will help address issues related with Miner Extractable Value (Mev). It will also align miners’ incentives with those within rest ecosystem while reducing overall supply making it more scarce hence valuable creating sustainable equitable environment for all users.
Featured image from Unsplash, chart from TradingView.com
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