Since the merge, ETH has achieved negative issuance. How does the significant upgrade MEV Burn exacerbate ETH deflation?

MEV Burn is described by Bankless as the most significant upgrade since EIP-1559, which, once implemented, will reduce the profits of MEV arbitrageurs and stabilize them, further reducing the issuance of ETH, making the deflation of ETH more severe.

Deflation of Ether, Another Deflation?

Ethereum began implementing EIP-1559 in August 2021, with the main change being that a portion of on-chain transaction fees are no longer given to miners but instead burned and removed from circulation:

• Original miner revenue: "block rewards" + "on-chain transaction fees"

• Original on-chain transaction fees: "base fee" + "tip"

• Post EIP-1559 restructuring: Miners receive "block rewards" + "tip"

After EIP-1559, the "base fee" no longer goes to miners but is burned and removed from the total circulating ETH supply. More information on EIP-1559 can be found in the following resources:

• Will EIP-1559 Definitely Cause a Rise? | A Brief History of EIP-1559 for Busy People: No, It Doesn't Guarantee an Increase in Ether

• Vitalik Buterin's Call for the Importance of EIP-1559 | Could Nearly a Million Ether Be Burned If Implemented a Year Ago? What Exactly Is EIP-1559

Data shows that as of May 18th, over 3.29 million ETH have been burned, and since the Ethereum merger, the ETH issuance has been decreasing, as shown in the graph below, leading to a deflationary trend in the total ETH supply.

So, could ETH take further measures to intensify the deflation of its total supply? Developers have turned their attention to "Miner Extractable Value" (MEV).

Issues and Crisis of MEV

MEV refers to the profit obtained by miners, validators, or arbitrageurs through operations such as front-running, sandwich attacks, or reordering transactions during block generation.

The term "Miner Extractable Value" (MEV) can be misleading as it is not solely earned by miners but mainly through traders employing on-chain analysis and structured arbitrage strategies. This leads to several issues:

• Increases blockchain instability.

• Distorts the neutral position of blockchain validation nodes.

• To execute competitive attacks like front-running, significant miner fees are paid, causing block congestion and a surge in on-chain costs.

The competitive costs arising from competing for block space are what MEV-Burn aims to address, which could also intensify the deflation of ETH.

What is MEV-Burn?

The goal of MEV-Burn is to burn the value extracted by MEV arbitrageurs, further deflating ETH by destroying value, effectively returning it to ETH holders.

A secondary goal of MEV-Burn is to balance the profit of MEV arbitrageurs, also known as "MEV-smoothing." Developers hope that the profit pursued by MEV arbitrageurs can become more stable and predictable, rather than causing gas fees to remain high, as seen during the meme coin frenzy.

The Meme Season Drives MEV Arbitrage: Ethereum Gas Fees Remain High, and the Culprit Is Revealed! Meme Coins Turn Out to Be the Biggest Accomplice

Significant Upgrades Needed to Drive MEV Burn

Prior to implementing MEV-Burn, Ethereum needs to undergo the proposer-builder separation upgrade through BPS, separating the block "builder" from the "proposer."

This separation prevents block builders from simultaneously selecting, packaging specific transactions and prevents proposers from determining the value of a transaction for sorting. They can only propose neutral on-chain costs for the blocks packaged by the block builders.

Advantages of MEV Burn

Bankless estimated in early May that Ethereum issues approximately 686,000 ETH annually as validator rewards, a issuance that has become more complex due to the presence of MEV, leading to an increase in issuance.

If MEV Burn is implemented, the profit earned by block validators from MEV tends to stabilize, reducing the motivation for validators to reinvest profits into Ethereum staking. Bankless believes that stable MEV profits can serve as the basis for decentralized infrastructure such as stablecoins, lending, or other forms of collateral, further expanding Ethereum's economic bandwidth.

Additionally, MEV-Burn is expected to further reduce the annual issuance of ETH by approximately 400,000 to 500,000, coupled with the burn mechanism of EIP-1559, the deflation of ETH is likely to intensify significantly.

Bankless also emphasizes that like many significant upgrades for Ethereum in the past, MEV Burn will not be completed in the short term but will require a 3 to 5-year timeframe. However, the wait for eliminating MEV from the Ethereum ecosystem is deemed worthwhile.

Bankless explains MEV-Burn in a more straightforward manner, while Ethereum's core developer Justin Drake provides more technical details:

MEV burn—a simple design

In early May, Justin Drake discussed MEV-Burn on the Bankless program, describing it as the most important upgrade proposal post EIP-1559.