MEV, or Miner Extractable Value, or a new way for miners to extract revenue from the Ethereum blockchain in an era of reduced mining income. MEV is a measure of the income a miner receives from their ability to reorganize transactions within a block. This can be problematic as it enables transactions to be executed upstream and challenges the idea of blockchain immutability.
The London Hard Fork went live on Thursday and despite some vocal opposition from miners, the EIP-1559 upgrade went smoothly and the price of ether then soared nearly 4% to $ 2,800, according to CoinGecko.
“The London Hardfork is one of the most significant Ethereum upgrades in the history of the network. From our point of view, the upgrade is seen as a positive catalyst. It makes the network more usable by reducing costs. more predictable for end users and also creates a potentially deflationary new monetary policy. The biggest open issue concerns EIP-1559, which drastically reduces the revenue generated by block producers and therefore potentially reduces the security of Ethereum, ”he said. Tushar Jain, managing partner of Multicoin Capital at Blockworks, said in a statement. “We expect block producers to make up for lost revenue by capturing more SRMs or joining other networks that help them earn fees in a variety of ways.”
Miner and SRM: the new reality of Ethereum
MEV, or Miner Extractable Value, refers to the ability of miners to re-prioritize transaction orders on the Ethereum blockchain. This process was first described in an article entitled “Flash Boys 2.0” published by Cornell Researchers in mid-2020, which documented the rise of robots in the then emerging decentralized forex market that would trade. Preview by outbidding on the network, forcing their trades to come first and shifting the market substantially in their favor.
The loss in value for retail investors from this corporate reorganization has not been quantified, but to the average observer, it would remind you of some of the criticisms voiced by retailers at the height of the Robinhood GameStop fiasco earlier this year. Year.
According to Flashbots, an aggregator that tracks these bots and the SRM they mined, $ 725.7 million has been mined this way since early 2020. For comparison, the total value of DeFi is just over $ 73 billion according to DeFi Pulse, and the market value of UniSwap, the most famous DEX, is around $ 1.7 billion per day according to DeFi Pulse. CoinGecko.
It all boils down to one central problem: Miners must offset lost income from “burning” EIP-1559 transaction fees as a form of rent control over fees and the deflation of EIP-1559. the ether money supply. According to Ultrasound.money, more than 2,400 ethers, or $ 6.7 million, have been burned since the London Hard Fork went into operation today.
Ethermine, a virulent adversary of EIP-1559, launched special top software for its mining pool in March (it accounts for just over 20% of Ethereum’s collective hashrate). Ethermine said at the time it was “to compensate for the impending reduction in mining rewards due to the introduction of EIP 1559”.
While the threat of a mining coup has been downplayed due to the imminent transition to ETH 2 and the move from Proof of Miner-Intensive Work to Proof of Stake, the problem is that all the signs suggest that MEV is something that will stay . Miners are simply swapped out and replaced with validators – stakeholders who own a lot of ether – who do the same thing.
According to a report by Flashbots, rewards for miners are simply referred to as validator rewards. The name could be changed to the extractable value “Maximum” and not “Minor”, but the principle remains.
“We find that the SRM will dramatically increase the rewards of the validators, but it could increase the inequalities among ETH2 participants,” the group wrote.
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