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MEV-Burn: A Long-Term Solution for Ethereum's MEV Challenges

MEV-Burn is a key component of Ethereum's multi-year roadmap, devised to address the issues surrounding Maximum Extractable Value (MEV) directly. The primary goal of MEV-Burn is to redirect MEV back to ETH holders by burning the value currently extracted by MEV participants. This redistribution effectively adds scarcity to the asset and alleviates selling pressure on block validators.

Stabilizing MEV Profits: The Secondary Objective

In addition to redistributing value to ETH holders, MEV-Burn aims to reduce chain instability by leveling MEV profits for block builders. This process, known as "MEV-smoothing," intends to make MEV rewards more predictable and stable, rather than the current high-risk, high-reward system in place today.

The challenge with MEV-Burn is the need to quantify MEV based on what block proposers (or builders) are willing to neutrally pay for it in an efficient market. Currently, the block-building market is an opaque, off-chain market characterized by fluctuating MEV profits. To resolve this issue, MEV-Burn requires the completion of another major Ethereum network upgrade: proposer-builder separation (PBS).

Proposer-Builder Separation: A Prerequisite for MEV-Burn

PBS divides the traditional validator role into two separate functions: proposers and block builders. By doing so, it prevents block builders from simultaneously selecting and ordering transactions to be included in a block. This separation eliminates the opportunity for block builders to engage in transaction discrimination, which is the core of MEV. Read more about PBS in greater detail here. 

Upon the completion of PBS, block proposers will no longer have the ability to determine the value of including transactions in a specific order. As a result, proposers will be forced to submit neutral fee bids for the blocks that block builders have assembled. This on-chain market process will replace the existing off-chain market facilitated by Flashbot’s third-party MEV-Boost software.

Advantages of MEV-Burn

Currently, Ethereum issues ~685,000 ETH annually as rewards for ETH validators. This issuance is compounded as validators vie for a share of MEV profits, which in turn increases issuance. MEV-Burn is projected to reduce this annual issuance by an estimated 400,000 to 500,000 ETH.

Stabilizing MEV profits also means reducing incentives for block validators to redirect capital towards staking, particularly during bull markets when issuance rewards are heightened. This expands the economic bandwidth of ETH and preserves capital for decentralized application (dapp) collateral, such as decentralized stablecoin collateralization, lending, and other forms of staking.

It is important to note that MEV-Burn is not a short-term solution, with implementation expected within a 3-5 year time frame. However, its potential to lead Ethereum out of the MEV dark forest makes it a worthwhile wait for the community.