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.
The tech industry boomed over the weekend. Ethereum validators saw MEV (maximal Extractable Value) profits spike as the bank collapsed. Stablecoin USDC was depegged at $1. According to Flashbots data, stablecoin USDC pegged at $1. Flashbots supplies the software that accounts for 89% MEV activity.
MEV is the central component in trading on Ethereum protocol. MEV is the extra profit validators make by inserting or reordering transactions within blocks. MEV has been compared to arbitrage in traditional markets.
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MEV-Boost is the main method Ethereum validators can obtain MEV. This software was developed by Flashbots and allows validators request blocks from a group of builders. MEV-Boost relays these blocks to validators, who then earn MEV. Flashbots relays 89% of validators’ MEV-Boost blocks to the blockchain. This means that most of the MEV activity in the numbers is reflected.
SVB was shut down by regulators on Friday. Circle, the stablecoin issuer, confirmed late Friday that $3.3 BILLION in cash deposits remained at Circle, which is about 8% of its total stablecoin USDC reserves. This caused the stablecoin’s 1:1 ratio to the U.S. dollar to drop. Users rushed to move their crypto or cash out their USDC.
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 twice the amount of the previous peak on March 11, when Flashbots’ MEV-Boost relay users earned 7,691 ETH in rewards worth about $13 million.
MEV profits had fallen to their regular levels by March 12. Flashbots brought in 2,282 Ethereum and MEV rewards via Flashbots. After Circle announced that they would provide USDC reserves to cover any shortfalls, the calm in transactions likely came about. USDC gained its peg.
Toni Wahrstätter, an Ethereum researcher who created a Flashbots MEV-monitoring dashboard, told CoinDesk, “In times of extremely high MEV, it’s good to know that the MEV rewards mostly end up with the validators, who don’t have to run complex algorithms, engage in private deals or anything but just be lucky while securing the Ethereum blockchain.”
Some Ethereum users who ran their own validators noticed a huge increase in MEV over the weekend. They hoped they would be able to claim their share of the MEV rewards.
When financial markets are affected by major news, the prices of coins can move quickly and offer profit opportunities. Ethereum validators can profit from bank runs and the contagion that they cause.
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