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.
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.
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 =)
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.
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.
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.
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?
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.
@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.
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.
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.
@@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.
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.
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%.
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!
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.
@@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.
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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 😅
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
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.
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.
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.
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
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.
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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.
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 😁😁😁💣
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.
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