Last Friday’s Silicon Valley Bank (SVB) collapse and subsequent contagion around what that means for the crypto industry drove a dramatic increase in the profitability for validators who run the Ethereum network.
As the tech industry blew up over the weekend, Ethereum validators saw profits from MEV (maximal extractable value) spike as the bank collapsed and as stablecoin USDC depegged from $1, according to data about Flashbots, which supplies the software responsible for 89% of all MEV activity.
MEV is a central component as part of trading on the Ethereum protocol. MEV refers to the additional profits that validators earn as a result of inserting or reordering transactions within a block. Some have compared MEV similar to arbitrage in traditional markets.
The main way that Ethereum validators can get MEV is through MEV-Boost, a software developed by Flashbots that allows validators to request blocks from a network of builders. Validators get these blocks from MEV-Boost through relays to earn MEV. Because 89% of validators use MEV-Boost to add blocks to the blockchain, and Flashbots has relayed most of those blocks, most of the data reflecting MEV activity is reflected in their numbers.
After regulators shut down SVB, stablecoin issuer Circle confirmed late on Friday that $3.3 billion in cash deposits remained at the bank, or about 8% of the total reserves backing its stablecoin USDC, causing the stablecoin to depeg from its 1:1 ratio with the U.S, dollar. Consequently, users rushed to cash out their USDC or move their crypto.
As the news of one of the largest stablecoin issuers in the crypto industry riled the markets, the movement of people’s crypto meant that there were more transactions available to generate MEV profits.
During this time, users of Flashbots’ MEV-Boost relay raked in a peak of 7,691 ETH in rewards worth about $13 million on March 11. This was more than twice as high as the last peak, which occurred during the FTX blowup on Nov. 9 when MEV rewards earned with Flashbots were 3,202 ETH or $5.5 million.
By March 12, MEV profits significantly decreased to regular levels, with MEV rewards via Flashbots bringing in 2,282 ETH. The calming in the movement of transactions probably came after the announcement that Circle would cover any shortfall in USDC reserves, leading to USDC regaining its peg.
MEV-Boost payments were at an alltime high yesterday, totaling 7691 ETH (!) which is nearly double the previous ATH of 3928 ETH during the FTX fiasco this fall.
A few statistics on MEV on Ethereum yesterday in this thread
(h/t @nero_eth for the data)
— @bertcmiller ⚡️