Ethereum Validators earn $13 million amidst USDC crisis through MEV

Flashbots, a company that provides software for MEV (Maximal Extractable Value), has reported that profits earned through MEV have more than doubled since the FTX crash. The collapse of Silicon Valley Bank (SVB) has significantly boosted the earnings of validators on Ethereum, with the stablecoin USDC’s loss of peg playing a vital role in this increase.

MEV is the profit validators earn by adding or reordering transactions while creating new blocks. Instead of processing transactions in real-time on-chain, validators can prioritize orders with higher fees to earn a profit, similar to traditional market arbitrage.

According to AZCoin News, after the US regulator shut down SVB, the USDC issuer confirmed that it still had $3.3 billion stuck in the bank. The announcement caused panic among users, with many selling or exchanging their USDC, causing the stablecoin to lose its peg.

At that time, market demand for trading increased, and validators had more opportunities to earn MEV profits. On March 11, Flashbots’ MEV-Boost users earned the highest amount of 7,691 ETH, approximately $13 million.

This figure is almost double the previous record high of 3,928 ETH recorded during the FTX incident on November 9. Although these statistics cannot be directly compared, the daily miner’s profit from mev-geth reached an all-time high of 6,397 ETH in June 2021. This is the profit of running mev-geth compared to a vanilla mempool mining client. To estimate the difference in payment for validators running mev-boost or not, one could examine the value of the mempool builder submitted (0xa1defa) and the winning block.

One interesting thing is that about once a year, there are days with massive amounts of MEV, such as June 5, 2021 (6,397 ETH profit), June 13, 2022 (6,313 ETH profit), and March 11, 2023 (7,691 ETH payment to mev-boost proposers). During such times, competitive MEV markets and OFAs (on-chain flashbots auction) play an essential role in returning value to users.

On March 12th, MEV profits significantly decreased to normal levels with MEV profits on Flashbots at 2,282 ETH. This was due to Circle’s announcement of compensating any shortfall in USDC reserve and the introduction of a new banking partner, Cross River Bank. As a result, the stablecoin was able to regain its 1:1 USD exchange rate and trading demand began to cool down.

Toni Wahrstätter, an Ethereum researcher, expressed his joy that most of the MEV profits went to validators. “They are not the ones running complex algorithms and engaging in insider trading. They just happen to have the opportunity to earn money while securing the Ethereum network,” he said.

In conclusion, MEV has become an important source of income for validators on Ethereum, with Flashbots playing a crucial role in providing software for these profits. While events like the SVB collapse and USDC’s loss of peg have contributed to MEV profits’ recent surge, competitive MEV markets and OFAs are vital for ensuring economic security during massive tail events.

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