Ethereum MEV-burn upgrade could reap big rewards for investors

Ethereum (ETH) developers plan to launch a new upgrade, christened MEV-burn, to solve the Miner Extractable Value (MEV) issue while further reducing Ethereum supply.

Notably, the MEV-burn upgrade is a continuation of the EIP-1559 upgrade introduced in 2022 when the Ethereum network started burning ETH.

Also Read: Major MEV event wipes out $25 million: How this affects Ethereum validators and ETH holders

Ethereum MEV and how it is a challenge

MEV is a critical consideration for the Ethereum community, as it defines the profits miners can get when they record or censor transactions in block. It becomes even more interesting, especially when there is high congestion on the network, like in the recent Bitcoin network backlog.

With the recent rally among meme cryptos like PEPE,  among other decentralized finance (DeFi) applications, MEV activity has soared in rampancy, causing a massive uptick in gas fees and reduced returns for the active user.  

Accordingly, MEV has become a key issue for the Ethereum network, altering incentives for block validators to display more neutrality. It, therefore, creates instability on the blockchain. Further, MEV bots participate in competitive attacks such as "front-running, DDOS attacks, eclipse attacks, and chain reorgs." All there are geared toward achieving a massive MEV bounty.  

The result of the above is a market that can be exploited and undermines the block validators' neutrality. This causes distorted market incentives and reduced network security, hence a problem.

How MEV-burn could boost Ethereum price

The Bankless team, an analysis and research firm, has revealed that Ethereum developers are developing a multi-year roadmap featuring the MEV-Burn upgrade to address the abovementioned challenges - instability, rise in gas fees, and reduced returns for the daily user.

Reducing ETH supply

The MEV-burn upgrade creates a mechanism to burn the MEV miners extract from the network, thereby aligning the incentives of individual miners with the rest of the Ethereum ecosystem. At the same time, it reduces the overall supply of Ether, making ETH scarcer. This would eventually increase its market value.

Creating a more stable market for MEV profits 

MEV-burn will return the value being extracted by MEV participants to ETH holders by burning it. In so doing, it redistributes the value and indirectly reduces sell pressure by block validators. This creates stability in the market.

The indirect move to redistribute value and reduce sell pressure by block validators equalized MEV profits for block builders, a principle known as "MEV-smoothing." Ultimately, this creates a more predictable and stable market for MEV profits instead of the current "big-game hunting affair."

Watch Ethereum researchers Justin Drake and Dom refer to the Bankless podcast as a "logical continuation" of EIP-1559.

At the time of writing, Ethereum price is $1,845, a daily increase of 0.09%. Nevertheless, the ETH market displays volatility and instability as the largest altcoin awaits the Bitcoin cue.

ETH/USDT 1-Day Chart

The Fair Value Gap (FVG) is a magnet for Ethereum price to fill the imbalance cast by the lower and upper candlewicks of the April 18 and 20 trading sessions, respectively, and the MEV-burn could be among the narratives that drive this price action.