What are the Implications of Ethereum’s Merge?

The Merge combines the current Proof-of-Work (“PoW”) Ethereum Mainnet with the Beacon Chain Proof-of-Stake (“PoS”) system.

‍

Want to hear more about how Blockdaemon can help you with your Blockchain journey? Contact us today to chat more about our blockchain solutions, or read on to get a closer look at what’s new.

‍

The Merge has the large implications for the Ethereum ecosystem, such as:

‍

• The end of PoW mining for Ethereum
• Reduced energy consumption (~99.95%)
• Increased network security and decentralization
• Sets the stage for future scaling upgrades (e.g., sharding)

‍

The Merge also has implications for Ethereum stakers, including:

‍

• 90% reduction in ETH issued (aka. "triple-halving")
• At an average gas price of at least 16 gwei at least 1,600 ETH burned every day, effectively bringing net ETH inflation to zero or less post-Merge
• Stakers cannot sell staking rewards right now (only after withdrawals are enabled in the future)
• The addition of Maximum Extractable Value, or “MEV”:  The process by which block builders review the available transactions to be included in the next block and select the ones to include and in which order.
  

‍

Of all these implications, Maximum Extractable Value is set to be one of the most important for stakers.

‍

In this blog, we’ll cover the implications of MEV for stakers and Blockdaemon’s total readiness for The Merge mainnet.

‍

What is MEV?

‍

With MEV, block builders include, exclude, and change the order of transactions. These blocks are built and relayed to the validators.

‍

This process seeks to maximize the value that can be extracted per block produced.

‍

MEV will be an important additional revenue stream for stakers post-Merge.

‍

If the block your validator is publishing contains any MEV transaction bundles, the tips (extra rewards) will be sent to your Ethereum withdrawal address

‍

These MEV rewards are about 10-15% of all validators rewards and are expected to increase the total rewards from ~7% to ~8%

‍

‍

For a full write-up of MEV, feel free to check out our previous blog post.

‍

How is Blockdaemon Handling MEV?

‍

As an industry-leading Ethereum validator, Blockdaemon is committed to an open source, democratized, solution to MEV.

‍

One such MEV solution is Flashbots’ MEV-Boost.

‍

Blockdaemon has successfully produced MEV-Boost blocks on the Goerli testnet. This follows Blockdaemon’s participation on the previous testnet Ropsten.

‍

To support this commitment, Blockdaemon is a founding member of the Flashbots Ethereum Working Group. Our MEV engineers actively work with Flashbots and others, to mitigate negative MEV externalities.  

‍

To date, Blockdaemon engineers have made important contributions to the success of Flashbots’ MEV efforts. These contributions have included:

‍

• Helping to identify and resolve software bugs
• Contributing to important MEV community education initiatives
• Adding tests to ensure the middleware is stable
• Internally building new features to manage MEV-Boost deployment & operations and large scale monitoring block production
• Successfully producing blocks using Bloxroute & Flashbots relays to further democratize MEV opportunities

‍

Our engineers have tested MEV-Boost across the Prysm Ethereum client, which is ready for The Merge.

‍

All infrastructure providers might not share the MEV rewards with their staking customers. Blockdaemon is dedicated to democratizing MEV and shares the MEV rewards with our staking customers.

‍

Blockdaemon has successfully tested and implemented MEV-Boost. We are fully prepared for The Merge.

‍

When is The Merge?

‍

The Merge will be triggered when the TTD reaches 58,750,000,000,000,000,000,000. TTD achievement is likely around early morning UTC on Sept 15th.

‍

You can track the estimated date by following this website, https://bordel.wtf/.

‍

The official release will transition the canonical Ethereum chain from Proof-of-Work to Proof-of-Stake.

‍

Blockdaemon will manage all updates on behalf of customers.

Note: Blockdaemon, like others across the industry, is continuing to proceed with excitement for the upcoming ETH Merge and intends to support MEV participation for our ETH Validator customers; customers who do not want their validator participating in MEV activities have the option to opt-out. Blockdaemon will continue to hold itself to the highest standard of AML/CTF processes and procedures and monitor ETH censorship as it evolves. Blockdaemon will adhere to all guidance that OFAC and other regulatory agencies formally release.

‍