Digging into how will EIP-1559 affect MEV

It's no secret that many mining pools haven't been fans of EIP-1559, primarily the fee burning aspect to it. But how will EIP-1559 affect MEV, another large source of revenue for miners? Our very own Kristof Gazso from Nethermind & Flashbot's Alejo Salles explored this in a recent paper they co-wrote together.

So, how do they make up for that loss of revenue? We explored two potential ways: mandatory base fee, these transactions that are stuffed onto blocks are no longer possible. One of the changes that will occur is that miner revenues will fall as a result of this change (part of why they opposed the change). Luckily, a simplistic analysis indicates that the majority of hash power (98%) will stay with ETH, despite EIP-1559.

So, how do they make up for that lost of revenue? We explored two potential ways:

• extracting more MEV
• artificially limiting block sizes

They might lean more into extracting more MEV.

One of these effects is miners stuffing blocks with bundles versus normal transactions, especially since these MEV bundles are generally more profitable than normal transactions. The caveat for this attack is that each bundle needs to be more profitable than the normal transaction, and as a result, we shouldn't expect blocks filled with only bundles.Next, miners could coordinate to keep the block sizes to the point where the basefee is 0, forcing users to pay higher priority fees to miners, undermining the benefits of 1559.

Because of the high uptake of MEV-geth (85% of Ethereum's hash rate), could this allow miners to collude passively? It would require all the miners to collude with no miner being selfish (among other assumptions) and is highly unlikely.

Flashbots team is clearly against of introducing such changes but how about miners changing the code? It's no secret that many mining pools haven't been fans of EIP-1559, primarily the fee-burning aspect to it. But how will EIP-1559 affect MEV, another large source of revenue for miners?

Make sure to check out the MEV and EIP-1559 paper: https://hackmd.io/@flashbots/MEV-1559, which goes into more detail!

Also, if you find MEV interesting, make sure to apply to our internship program where you can work on cool stuff like this:

https://twitter.com/nethermindeth/status/1417049904954888198?s=20 ????