MEV, or Miner Extractable Value, or a new way for miners to extract income 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 because it allows the upstream execution of transactions and challenges the idea of ​​blockchain immutability.

The London hard fork went live on Thursday, and despite some vocal opposition from the miners, the EIP-1559 upgrade went off without a hitch and the price of ether then rose almost 4% to $ 2,800 according to CoinGecko.

“The London Hardfork is one of the most significant Ethereum upgrades in the history of the network. In our opinion, the upgrade will be 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 is EIP-1559, which drastically reduces the income earned by block producers and therefore potentially reduces Ethereum’s security, “he said. 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 costs in a number of ways. “

Miners 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 published in mid-2020 by Cornell Researchers titled “Flash Boys 2.0”, which documented the rise of robots in the then nascent decentralized forex market. their trades coming first and significantly shifting the market in their favor.

The value lost to retail investors as a result of this business reorganization has not been quantified, but to an average observer it would remind them of some of the criticisms leveled by retail traders at the height of Robinhood’s GameStop fiasco earlier this year. year. year.

According to Flashbots, an aggregator that tracks these bots and the SRM they operate, since early 2020, a value of $ 725.7 million has been mined by miners in this way. For comparison, the total value stuck in DeFi is just over $ 73 billion according to DeFi Pulse and the market value on UniSwap, the most well-known DEX, is around $ 1.7 billion per day. according to DeFi Pulse. CoinGecko.

It all boils down to one central issue: Miners have to make up for lost income due to the “burn” of EIP-1559 transaction fees as a form of rent control over fees and EIP deflation. -1559. the Ether money supply. According to Ultrasound.money, since the London Hard Fork commissioned earlier today, more than 2,400 ethers or $ 6.7 million have been burned.

Ethermine, a virulent adversary of EIP-1559, introduced in March specific cutting-edge software for its mining pool (it represents just over 20% of Ethereum’s collective hashrate). At the time, Ethermine said it was “to compensate for the upcoming reduction in mining rewards caused by the adoption of EIP 1559”.

While the threat of a mining coup has been downplayed due to the impending transition to ETH 2 and the shift from proof of heavy labor to miners to proof of stake, the problem is that all signs point to the fact that MEV is something that is here to stay. Miners will simply be swapped out and replaced with validators – stakeholders who hold a lot of aether – doing the same.

According to a report from Flashbots, rewards for minors will simply be referred to as validator rewards. The name could change for the extractable value “maximum” and not “minor”, but the principle will remain.

“We find that SRM will dramatically increase validator rewards but may reinforce inequalities among ETH2 participants,” the group wrote.

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