Ethereum (ETH) developers are looking to implement a new update known as MEV-burn, which aims to address the miner’s extractable value (MEV) issue and further reduce the supply of ETH. The MEV-burn update is a logical continuation of the EIP-1559 update, implemented last year and marked the first time the network started burning ETH.
MEV refers to the profit that miners can earn by reordering or censoring transactions in a block. As a result, it has become one of the main concerns of the Ethereum community, especially at times of high network congestion. With the recent boom in meme coins and other decentralized finance (DeFi) apps, MEV activity has become even more rampant, leading to skyrocketing gas prices and declining returns for everyday users. .
According For the team at Bankless, an analysis and research company, the MEV-burn update aims to address this issue by creating a mechanism to burn the MEV that miners extract from the network. This would help align miner incentives with the rest of the Ethereum ecosystem and reduce the overall supply of ETH, making it more scarce and therefore more valuable.
MEV-Burn, the revolutionary Ethereum update
MEV has become a major problem for the Ethereum network, with some 566,000 ETH mined from common users due to this phenomenon. As a result, MEV distorts the incentives for block validators to behave neutrally, leading to instability on the blockchain.
MEV bots engage in competitive attacks such as frontrunning, DDOS attacks, eclipse attacks, and chain reorganizations, all in pursuit of a large MEV bounty. This creates an exploitable market that undermines the neutrality of block validators, leading to distorted market incentives and reducing network security.
According to the Bankless team, Ethereum developers are working on a multi-year roadmap that includes updating MEV-Burn to address this issue. MEV-Burn aims to return value mined by MEV participants to ETH holders by burning it, indirectly redistributing value and reducing selling pressure from block validators.
In addition to redistributing value, MEV-Burn aims to reduce on-chain instability by equalizing MEV gains for block builders. This is known as “MEV smoothing,” which seeks to create a more predictable and stable market for MEV earnings rather than the current “big game game.”
However, quantifying MEV and determining how much can be burned or smoothed is challenging. Based on Bankless’s analysis, the Ethereum protocol needs to find a way to quantify MEV based on how much block proponents are willing to pay in an efficient market. This requires another major upgrade to the Ethereum network known as proponent-builder separation (PBS) to be completed first.
PBS splits the traditional validator role into two separate roles: proponents and block builders. The goal of PBS is to prevent block builders from being able to simultaneously select and order the transactions to be included in a block. This division of labor strips block builders of the ability to engage in transaction discrimination that is at the heart of MEV.
While many details remain to be worked out, the MEV-Burn and PBS update are promising solutions to the MEV issue on the Ethereum network. By reducing the supply of ETH and creating a more stable market for MEV earnings, these upgrades could help make the network more secure, lower gas prices, and create a more sustainable and equitable ecosystem for all users.
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