Source: https://www.reddit.com/r/EtherMining/comments/ltcvs1/new_analysis_finds_eip1559_will_cut_miner_revenue/
Correction: Reddit doesn't allow editing the title, but it should say "[...] could cut miner revenue" rather than "will cut miner revenue". Apologies.
Georgios Konstantopoulos and I have conducted a short study to establish lower, middle, and upper bounds for how much miner revenue would be burned after EIP-1559. We believe our conclusion could be relevant for you.
The reason that such estimates were very difficult to make until now is that miner revenue consists of three sources:
The block subsidy (2 ETH per block + uncle rewards);
Congestion fees from users (what users pay to be included anywhere in a block); and
Transaction fees from MEV (what frontrunners and arbitrageurs pay to be included *very early* in a block)
After activation of EIP-1559, miners will continue to receive the same revenue from the block subsidy and MEV. The value from inclusion fees would be burned as long as the system isn’t congested (demand below the maximum gas limit). When demand exceeds the maximum gas limit, there would be an additional first-price auction between transactors, with the proceeds going to miners.
Quick primer on MEV (you can skip if you want)
I know that everyone in here is familiar with the first two types, but some may not be as familiar with the third type. To give you a concrete example, here is a recent block that paid 112 ETH in rewards. 2 ETH from the subsidy, the rest from fees.
On further inspection, we can see that over 70 ETH of that actually comes from only seven transactions, at index 1, 2, 5, 6, 7, 10, and 12 respectively. Why do these transactions pay such a high fee? These are all very profitable arbitrage opportunities (in this case liquidations on Compound) and many different parties (usually bots) compete to execute them. These bots can make a lot of money by making the trades, and so they bid a lot of money specifically to be *very early* in a block for a higher chance to be first to this particular opportunity.
Miners benefit from these bidding wars without even noticing.
Back to the problem at hand, which is that the third revenue type, transaction fees from MEV, has been very difficult to estimate.
That was until this week, where we got a new tool at our disposal. MEV-Explore can identify MEV transactions, and hence fees from MEV, by looking for certain patterns in every transaction. You can read about the exact methodology here.
Combining their data with overall revenue data allowed us to come up with this absolute lower bound for the share of MEV in overall miner revenue (green).
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| chart 1 establishing the absolute lower bound |
We then built on this absolute lower bound by assuming that MEV-Explore correctly identifies 67%, 50%, and 33% of the total extracted MEV today.
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| chart 2: 67% of MEV is correctly classified |
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| chart 3: 50% of MEV is correctly classified |
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| Chart 4: 33% of MEV is correctly classified |
Based on our best guess (Georgios is a co-creator of MEV-Explore), the 50% scenario is most likely to be correct and represents a more credible upper bound.
What does this mean for you? The important takeaway is that only the orange area of the chart would actually be affected by the fee burn, while the green and blue continue to accrue to miners. Whenever users (or in this case bots) bid to be included not anywhere in the block but early in the block, they do this via paying very high tips. And this will be unaffected by EIP-1559.
You also don't need to run any further software to benefit from this revenue. We are merely explaining the source of revenue you already receive with your regular mining process.
You can read our full analysis here. https://insights.deribit.com/market-research/establishing-bounds-for-miner-revenue-in-eip-1559/
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