ETH’s Biggest Upgrade Since EIP1559 | MEV Burn w/ Justin Drake and Dom

Ethereum is getting yet another economic upgrade! The scarcity engine is getting a massive level up with the advent of the MEV Burn.
With Justin Drake and Domothy, they walk us through the research and reasoning behind this next upgrade
Just when we thought we couldn’t get any more bullish…
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Topics Covered
0:00 Intro
7:00 What is MEV?
13:30 MEV is Subjective
17:15 The Oil Analogy
21:15 The Benefits of Smoothing
28:35 Builders and Proposers
38:45 Forced Centralization
44:35 Rug Pool Protection
48:30 Distribution
58:20 Pros of Burning
1:05:15 Burning on Overdrive
1:09:30 Does this Hurt Stakers?
1:13:55 Too Deflationary?
1:23:30 Monetary Premium
1:28:15 EIP-4844
1:31:00 The Engine
1:35:50 Wen?
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Resources:
Justin Drake:
dr...
Dom:
do...
Hildobby's Dune Board:
dune.com/hildo...
Ultrasound.Money:
ultrasound.money/
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Related Episodes:
EIP-1559:
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MEV:
www.bankless.c...
www.bankless.c...
Ultra Sound Money:
www.bankless.c...
www.bankless.c...
www.bankless.c...
Justin Drake:
www.bankless.c...
www.bankless.c...
www.bankless.c...
www.bankless.c...
www.bankless.c...
www.bankless.c...
www.bankless.c...
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Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research.
Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here:
www.bankless.c...

[@OSSHx]

The information alpha in this episode is insane and will likely not be fully appreciated by the market for a long time. Unreal episode!

[@ericmatthews1588]

Great episode! This taught me a lot of concepts about the Ethereum blockchain. Edit: messaged slightly too soon on the below, as I was right at 1:14:00 - seems like the idea is that deflation should stabilize at some point to a constant, that ETH is not a currency but a store of value used as collateral for stable, inflationary assets. The question still stands on competition though. I realize that this is a pro-ETH podcast, but I would love to see you guys discuss the potential negatives of a deflationary cryptocurrency. I detected greedy faces towards the notion that bags are going to keep pumping forever-more, and faster with MEV burn. Can we take a step back to extrapolate the future of all of this burn, and ask ourselves what sort of effects this has on Ethereum's health and competitiveness with respect to other assets (especially other blockchains)? For example, how does demand for block space, or gas fees change as a result of decreased ETH supply? One benefit of inflation is that it encourages economic spending (purchasing power decreases over time, so it's better to exchange for other assets now than later). However, a deflationary currency encourages holding because purchasing power will theoretically increase over time, thereby discouraging its exchange for other assets.

[@nsteinhilber]

The beautiful thing is that Ethereum's burn/emission mechanics are inherently self balancing. As you noted, heavy deflation encourages hoarding of an asset and a decrease in the velocity of that money/good. In the event that heavy deflation is occurring, the only activity on chain will be high economic value activity where participants judge the expenditure of ETH worthwhile. If those economic opportunities decrease, then the incentive to burn large amounts of ETH disappears, and economic activity falls. As that activity falls, ETH's base fee drops and eventually, the system begins to inflate again. At all times, Ethereum is driving itself to an equilibrium between economic activity on chain, and protocol emissions. The systems wants them perfectly balanced. During periods where the asset is undervalued, the burn will drive down supply. When it is overvalued, the supply will slowly inflate and dampen upwards price movement.

[@envelop]

Thanks a lot! We love Ethereum.

[@ay-ay-non]

15 minutes in, and if I got an ETH for every time David said EIP-1559, I could retire. Lmao

[@swylie2010]

Another good one. I like Justin. I’d like to hear more about his thoughts on the overall global economy.

[@bradynields9783]

When does burning more and more ETH put deflationary pressure on it circulating supply?

[@slamslidestyle]

Right now

[@scotty06wwjd]

Thanks, but the largest issue ETH is facing is high gas fees. The network is un-usable for the average Joe. Gas fees are just through the roof. PulseChain solves this. Also PulseChain has already taken the load off of ETH network and caused ETH gas fees to go down a bit. Win win. Very bullish on PulseChain =)

[@Zzodar578]

Everytime you hear or see the word "MEV", just make sure you understand that this is money that was stolen from the users of the blockchain. The MEV is coming from selling block-building rights to MEV sandwich attackers, and then paying kickback bribes to validators. It's no different than you selling the rights to mug someone and then the mugger paying you a referral fee. Now, instead of paying those bribes to validators, they're going to burn it. Notice they aren't discussing solutions on how to mitigate the MEV extraction in the first place; they're only talking about what to do with the stolen proceeds after it's already been taken from the users.This panel is getting excited that their ETH bags will be pumped even more by theft from Ethereum's own users. The reality is that ETH, the asset, is inversely correlated with the usability of Ethereum, the network. Everything they're doing is to extract maximal value from Ethereum's users to put ETH, the asset, before Ethereum, the network. Crypto will never scale to the masses unless blockspace cost and MEV extraction approach zero.

[@slamslidestyle]

When you put it like that…

[@mgsgde1926]

Relating to rug pool protection in the context of Rocketpool. As a node operator I can modify the Rocketpool client, so that MeV is sent to a different fee recipient address if MeV > 8 ether. And as consequence rocketpool would take away my staked 8 ether. Is my understanding correct?

[@nsteinhilber]

Yes, that is correct. Basically it would negatively impact the APR of rETH the more often large lottery blocks are produced and stolen by smoothing pool participants.

[@mgsgde1926]

and to what extent is this already done?

[@nsteinhilber]

@Adam H If a malicious node operator (the person who has bonded 8 ETH) decides to install a custom smart node CLI that redirects large MEV blocks to their own withdrawal address instead of the smoothing pool, the oDAO will have a system that detects that activity and then slashes their 8 ETH stake (if they steal 3 ETH, they only get 5 ETH back on exit). Obviously, a truly malicious actor could wait for a large lottery MEV block (say 30 ETH and just sacrifice the 8 ETH they have bonded to the validator.

[@PatrickAyelle]

I thought it was secure when it finalized? 26:50

[@MindFieldMusic]

🔥 Shout-out to Dom! Who, if I'm not mistaken, is the author of this MEV burn proposal. 🔥

[@gspoo]

cant get excited about this. eip 1559 was beautiful, but this one doesnt seem game theoretically sound. Isnt this a centralizing force for builders?

[@PlanetFrosty]

Ethers indirect connection to World Coin and WEF make it undesirable and vulnerable to capture by TradFi.

[@rof8200]

Agree, Ethereum looks beautiful right now.

[@braedonlanna2751]

Predicting< a reversal of a trend is risky and even worse, I believe there is more to this market than we understand currently. When people are losing, they don't aim to increase their average, but that can only change if you have a personal trade guide and signal provider like that of Aaron Addison who has made me almost 19.5 on a 2 btc Trade capital over the last 3 months. Make the wise decision. Markets fluctuate in cycles lasting anywhere from a few days to several years. In the case of B -TC, it isn't easy to make a bullish case simply from looking at the charts.

[@braedonlanna2751]

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[@myraalper7611]

Impressive positive remarks is all I have read and heard about this Aaron for a while now. Would try this out with my Bitcoin.

[@braedonlanna2751]

TELE/GRAM☑

[@kattieshouse6554]

boastfully has thought me a lot and i made my first reasonable profit with his signals

[@icommandoi145]

ETH network needs privacy for validators to not expose their Geo location. Also burning ETH is not distributing ETH to ETH holders but destroying the asset itself. Burn != Distribute. MEV Burn would in essence give nothing to the validator running MEV Boost so in theory people will just turn MEV Boost off since there is no more MEV. Lets just call it what it is :) ALSO Ether doesn't issue 2 ETH per block per reward since we merged to POS and stopped POW. ETH issues 0 ETH per block now.

[@Corn1994]

Burning does distribute extra purchasing power to holders. You have 1/21,000,000 of something and then you suddenly have 1/20,999,999 of something by 1 of them being burned by others. It's a more efficient way of distributing since sending to each and every wallet would require gas.

[@icommandoi145]

@@Corn1994 BUrning your car doesn't increase the value of other people's cars. Also there is no 21 mil cap on ETH. ETH has an unlimited cap.

[@nahitgunes2813]

I just tried their service for 10 usd and I am shocked. HOW ?! IN A MOMENT whaaaattt

[@cryptoemcee]

Thanks!

[@WikiTicky]

Interesting... It gives more confidence there won't be inflation which nurtures other use cases for ETH which reduces the number of validators which boosts validator income and the diverse use cases boosts the ecosystem. I'm just saying... other POS chains have 80% of supply staking... i.e. who is actually using it then? Burning MEV would nurture ETH use cases and balance out the supply validating.

[@jordanmiller11]

My problem with the theory is that you still need ether to pay for transaction fees, so you still risk strangling your economy is USD terms. Also decentralized stablecoins don’t work yet.

[@Midg-td3ty]

Decentralized stablecoins work for years, RAI sUSD LUSD

[@piaere]

I agree. I guess the way to solve this would be to be able to market txs and pay gas fees with decentralized stablecoins instead of ETH. In meat--space, you pay your grocery and bills with USD not gold.

[@Midg-td3ty]

@@piaere Thats not going to work. It would implode the entire system. It has to be eth not just because ether have to be burned. But ether value is directly responsible for the security of the chain. If the value on chain is not reflected by Ether price people will exploit the PoS system. So it cant be stablecoins.

[@piaere]

@@Midg-td3ty agreed. Then we will need some kind of gas price stabilizing mechanism while keeping the gas price denominated in ETH. Or thru a L2/L3

[@jpatche]

to get from 2/3 to 3/3 you multiply by 1.5, not 1.33

[@nsteinhilber]

My one contention with Justin's reasoning is around ETH issuance savings (due to the reduction in staking participation). This totally assumes that staking exists in a vacuum without liquid staking tokens (e.g., the opportunity cost of money rises for stakers due to the reduction in validator MEV rewards so they opt to deploy their assets in Defi vs staking). Liquid staking tokens largely eliminate this opportunity cost and actually extend the functionality of ETH, it's a superior asset to hold in the Defi ecosystem. This is further reinforced with the advent of re-staking (assuming Eigenlayer is successful in the future). Holding raw ETH makes zero economic sense in a market with LSTs (assuming you are comfortable with the smart contract / oracle risks associated with liquid staking protocols). I'm almost certain that MEV burn will have zero impact on the total staked ETH % (and thus issuance). The only real hindrance will be underlying technical issues around gossip protocol congestion that will force the EF to implement validator rotation or some other potential solutions. We're going to move to a world of 70-80% staking participation barring technical limitations. This will result in a terminal beacon chain yield of ~1.8-2%.

[@nsteinhilber]

Of course, I wrote this comment before hearing Justin's final point around capping the validator count...entirely separate can of worms to deal with there!

[@aydinates1005]

Agree with that!

[@nukeout]

Very cool episode - in order to have power to the people I support continued decentralization of ETH2 so you don't have to have a mining warehouse in your bedroom 😅

[@christopherabbott7910]

Thank you 😊

[@gaellewizenberg9248]

Where is link for uniswap wallet?

[@IRONMANSCHOOL]

Looks like Ryan finally turned the beauty mode off... scary!

[@caninflor5984]

Not a fan of this proposal. Seems too complex for something that might not even be the best solution in the long term. Let MEV stay as an external free market mechanism for now.

[@GentlemanJamesWin]

As a validator, I want to keep that MEV...

[@Chaicowski]

Agreed. I'm not tracking whey they care if the fees are spiking. The chain instability sounds like bs. Sounds like socialist mumbo-jumbo

[@maxlife459]

But as explained in the vid, you'll also get a portion of the rare 1000ETH MEV via its burn.

[@Midg-td3ty]

I am a validator too. But first of all its a massive lottery. Some people get massive amounts of MEV some dont. Yesterday someone got 64 Eth MEV its not distributed fairly thousands of validators get nothing. Also burning the MEV will make the asset that you get worth more. So you get the MEV fairly returned to every holder. I rather give up on MEV and improve the network overall.

[@Chaicowski]

@@maxlife459 but I don't want someone else's lottery winning. I'm happy for them and hope to be next. The validators rate it, they took a risk with little certainty and now they have something nice to look forward to and the solution is to take it away and redistribute it. Hard pass.

[@Chaicowski]

@@Zzodar578 do you understand English, the basics of the Ethereum Blockchain and how MEV works?

[@Chaicowski]

The 2 eth 10 eth mev comparison and saying value isn't there is nonsense and Justin was too nice to say nope. But at least he broke it down. Wtf is he talking about birds and falcons? It's a lottery.

[@Chaicowski]

I get the birds analogy now, should just say those helping to secure vs those using the network. This is a bate and switch power play. You gather the Ethereum community together to leave PoW to PoS, then these rewards offer the ones that had the most to lose and made it possible to move to PoS are seen as wining these MEV lottery payments, and that's a bad thing. And in the name of national security, I mean network security, the rewards are taken away from stakers, for their protection from pools and given to everyone evenly distributed to ensure that those on top, stay on top and that how the network will be secured. TF? Yooooo, if it ain't broke, don't "fix" it.

[@billylau2842]

no, burning MEV is 100% detrimental to ETH stakers before MEV burn, ETH stakers (~15% of total ETH) shares all MEV value after MEV burn, ETH holders (100%) shares all MEV value At current rate APR drops from ~5% to

[@Zzodar578]

Do you understand that MEV is coming from the exploitation of ETH's own users? Do you understand where that extra yield is coming from? You're getting kickbacks from people running MEV sandwich bots, which are stealing money from people on Ethereum.

[@telotawa]

please don't cap the validator set the APR drops enough by that point that you shouldn't need to cap it, it's enough of a disincentive I don't want a world where there's a several months or years long queue for depositing to the beacon chain

[@Midg-td3ty]

The queue gets bigger the more people validate. There wont be a long waiting queue also the validator set deactivation wont work they way you think it will. Validators will just sleep for a certain period of time. Its actually good that MEV will get burned it will limit the incentives to validate. So we wont have more than 1 Million validators.

[@emineyagmur5612]

*NichesPanel: hold a pint*

[@Sansarsan_bey]

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[@MariusNatt]

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[@Rachelschneider03]

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[@ReidCoffman1]

Following her trading strategies has been a game-changer for me.

[@hasanaltug3247]

I have this fccin NichesPanel everywhere wtfff

[@prlito9mm]

High alpha in this episode if you have the time 🙏

[@robertoospina10]

Constantly shilling centralized exchanges goes against their own message of defi... These guys are not the real deal.

[@jimmim3000]

Stealing MEV rewards from validators and burning them is a terrible idea, which will lower the APR and disincentive solo staking. I hope the developers are smart enough to ignore this entire trend of thinking. Rewards for solo staking should be increased, not decreased. It wasn't just luck to get block proposals, and it's insulting for someone to say that. It took many hundreds of hours of work to first research ETH over the years and then figure out how to become a solo staker.

[@Sensational1]

LOL at stealing MEV rewards? MEV is theft in the first place from the users of the network.

[@jimmim3000]

@@Sensational1 That's the fee for securing the network, whether you like it or not... no different from paying transaction fees for mining BTC.

[@permaweave5104]

David Hoffman looks absolutely stoked at the beginning of every episode that involves interviewing a raging ETH bull.

[@LUCasS_79]

Qartn token is awaiting major CEX listings. It's possible to hit 100x this year.

[@venusrise]

Say EIP1559 again

[@andrewmcmurray8081]

Getting fees lower is the most important issue to solve.

[@davidcoursey5041]

pepe = 2017 CryptoKtties redux : "made" ETH do a roughly 3.5X in the next 2 months ~ while baby budget ADA shot up 1000% in 1 month

[@markkuykendall5475]

MEV sounds parasitic.

[@Richard1may]

Is this the Eth Maxi channel ?? 🤣 OK so you guys liked centralised non liquid staking and high gas fees. Cardano is coming how I love the information Asymmetry 😁😁😁💣

[@ericmatthews1588]

Seems like it has become more-so that over time. I understand that ETH is currently popular, but it seems ignorant to posit that there will be one chain to rule them all, and that ETH is the prettiest contestant in that race. The world is all sorts of shades of grey that will require many different modes of operation.

[@bespoken2017]

Get ready for Pulsechain 🎉🎉🎉

[@philknirck7347]

can we please stop with the analogies

[@MSWcryptoworker]

You know, there are many times mystical moments. I’m a ex orthodox Jewish balteshuva. Now it’s seeing the miracles.

[@andrewmcmurray8081]

Riveting

[@crypt0653]

84 more days until DeFi on Ethereum will be obsolete: Radix XRD.

[@69pepe420]

pepe is starting the bull

[@jamokhan7294]

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[@sadgirl-uf9gp]

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[@f3xyking]

I typed *NichesPanel* in the search engine and I am shocked. Are people seriously buying this? And does it really work? 0,1 USD? no way xd

[@sametherdili744]

And again ad NichesPanel buy followers. why they show it to me lol