What is Miner Extractable Value ?
In this article, you will learn about MEV and how it works on Cruxpool.
About transactions and fees on Ethereum Network
Quick reminder, processing transactions on Ethereum requires computational resources to execute, each transaction requires a fee. Gas refers to the fee required to successfully conduct a transaction on Ethereum.
Since the London network upgrade (EIP 1559), every block now has what is called a “base fee”, which is the minimum price per unit of gas for the inclusion of transactions in this block. This is calculated by the network, based on demand for block space.
As the base fee of the transaction fee is now burnt, users of the network are expected to set a tip (called a priority fee) to pass their transactions. The tip is supposed to compensate miners for executing and propagating user transactions in blocks and is expected to be set automatically by most wallets.
For miners, this means that 1) Block rewards are lower than before thanks to the fees burnt, and 2) gas fees on the network are still high and expensive.
Unlike a vast majority of mining pools, we aimed at keeping our payouts free for our miners, so that they can get the most out of their mining investment.
That’s how MEV comes in handy.
What is MEV ?
MEV stands for Miner Extractable Value or Maximum Extractable Value, it is a reorganization technique that allows a miner to receive more than the “normal” rewards of a block (the base reward of 2 ETH and the transactions fees of the transactions included) with only mining as it extracts more value from blocks by reorganizing transactions.
Miners on the Ethereum Blockchain are going to extract profits by reorganizing or including transactions in a block (using an arbitrary method) according to their profitability. This is how miners will be able to determine the transaction order in the blockchain to their advantages.
The role of miners in this ecosystem ?
A miner is an entity mining blocks such as a pool or a solo miner. To facilitate the MEV process, miners will work hand in hand with searcher bundle relays such as Flashbot, an organization providing MEV bundles to mining pools. Searchers submit transaction bundles that will allow them to profit off of arbitrage opportunities, and reward the miner with a share of those profits for including that bundle properly.
The role of EDEN Network and Flashbots
At Cruxpool, we are working both with Flashbot and EDEN network searchers to be able to provide for MEV.
Eden Network is a priority transaction network that protects Ethereum traders from malicious MEV and arbitrary reordering. In technical terms, Eden Network is an optional, non-consensus breaking ordering protocol. The protocol creates a transparent and fair set of rules to order transactions within each block”
Being an EDEN block producer means that we are able to get an additional stream of income that will secure our capacity of paying for our miner’s transactions fees. This means that Cruxpool will keep paying for tx fees.
Meanwhile, miners that are a part of Flashbot’s MEV relay have seen an increase in income per block.
“Flashbots is a research and development organization working on mitigating the negative externalities of current MEV extraction techniques and avoiding the existential risks MEV could cause to state-rich blockchains like Ethereum. Our primary focus is to enable a permissionless, transparent, and fair ecosystem for MEV extraction.
It falls under three goals:
- Bringing Transparency to MEV Activity,
- Democratizing Access to MEV Revenue
- Enabling Fair Redistribution of MEV Revenue
How does it really work ?
Generally speaking, miners verify transactions gathering in a block, which are then validated by the network. The network makes sure that transactions are valid, as the order of transaction in a block is important, but the inclusion of a transaction doesn’t depend on the order of arrival in the public mem pool (the list of public pending transactions).
What usually used to happen, even if it was not requested by the network, is that transactions would be organized according to the highest gas fees to get the maximum profit.
Now with MEV, ‘’searchers’’ as they are called, are extracting profits by arbitrarily reorganizing transactions in a block and proposing bundles to miners with the promise of a higher reward. It means that, by extracting more value per block, MEV brings more reward when a block is mined.
Today, there are two ways for the searchers to propose bundles:
How is it redistributed?
MEV is part of the reward received when a block is found. Our Ethereum mining pool is in a PPS+ reward system which means we pay every share our miners submit and the transaction fees.
We calculate the value of a share while using the reward over the last 5 blocks mined so we can set an average for the price of a share over those 5 last blocks. The MEV from Flashbots bundles will be included in this average, adding value to your average share reward, meaning miners revenue will increase every time we produce MEV blocks.
As of today, 90% of the MEV will be redistributed, the other 10% will be re-invested in Cruxpool’s development
How to keep track of MEV profits?
In order to help you track MEV profits, we have set up a new block explorer, available here.
This block explorer is simple as of now, but we will soon be adding more relevant information. As of now, you’ll be able to track the global reward we use in the setting of our average share reward.
This block explorer will show you the 50 latest blocks mined by the pool on Ethereum and how much MEV added to it.
How is MEV calculated:
Basically, the Reward column is the result of the Base Block Reward + Gas Fees + MEV Gas Fees (if any) + MEVCoinbaseTransfer
The column next to it specifies the amount of MEV included in the Reward column.
/!\ The reward amount will be higher from what you may find on etherscan, as it includes MEV profits!