TLDR
The MEV-Burn Proposal is a proposed solution by Ethereum developers to redistribute the profits from MEV that currently are extracted. In the future, these MEV profits will be burned, according to the proposal. This will help make the Ethereum block production process more stable and reliable and also will make ETH more deflationary.
Ethereum developers have proposed a rigorous solution for the battles that break out from time to time because of mempool-related arbitrage. The solution? They will burn the ETH that MEV traders currently pocket! While the primary goal of this proposal is to make the tip of the Ethereum chain more stable, the not unwelcome byproduct is that Ethereum will become even more scarce/deflationary.
What is MEV Again?
A refresher on Maximal Extractable Value (MEV): it is the additional profit that validators can scoop up while adding blocks to a blockchain. They can maximize the money they make from block creation by reordering transactions within blocks and even inserting new ones. The classic example of how validators make money is called a sandwich attack: a so-called searcher (a bot) detects a large pending trade on a decentralized exchange and places a trade right before and right after it – and pockets the created price difference.
While MEV is not always a problem, it is a form of taxation on normal users. They pay higher gas fees or pay slightly more on a dex for their coins than they would otherwise have. Also, it can create instability, as we will see.
A Problem with MEV: MEV Spikes
MEV is a small industry. Currently, hundreds of thousands of dollars per day are squeezed from blockchain transactions by MEV bots. (see MEV-Boost.pics).
As you can see, the average MEV payment (the above graph depicts only blocks created through MEV Boost by Flashbots) is around 0.05 ETH per block. But it can spike violently to an insane 1 ETH per block on average during a few hours (remember that Ethereum produces a block roughly every 12 seconds). Within these periods of market upheaval, there have been Ethereum blocks where a lucky validator squeezed more than 100 ETH from a single block!
When do these spikes occur? Let’s say there is a launch/public offering of a popular new token or NFT project. At such a time of high traffic and congestion, validators can benefit from their ‘inside knowledge’ and front-run other people’s transactions.
As you can see from the two huge spikes in the above graph, they happened during the FTX implosion of November 2022 and the temporary de-pegging of stablecoin USDC in March 2023.
Solving MEV Instability
It’s these spikes that worry the Ethereum community and it’s why devs have been working hard on a new and more fair system of MEV.
Proposer builder separation (PBS) was already in the works: a fundamental design change of the Ethereum consensus mechanism. It isolates the building of blocks from transaction validation. It will decentralize the building of blocks.
Because we might have to wait a few years for the implementation of PBS, MEV-Boost is what we have to work with: a sort of proof-of-concept of the proposer builder separation. It’s an iteration of Flashbots, which seeks to democratize MEV opportunities. Flashbots lets validators outsource the work of building the most profitable block to parties called…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
