Now, picture Ethereum turning the tables, transforming this tormentor into an ally. How? By lighting a flame under it.

In a bold and double-bladed move, Ethereum plans to eliminate and harness the MEV threat to trigger deflation. 

And the result? A remarkable surge in deflation that could see the ETH supply drop over the next several years.

Ready for all the deets? Let's dive right in!

TLDR 📃

• Ethereum plans to tackle the MEV issue by burning it.
• The proposed MEV Burn could reduce the ETH supply by an estimated 500,000 annually, making it more scarce.
• While waiting for the MEV Burn upgrade, people are using "intents" to protect against the MEV threat.
• Will this new MEV strategy potentially equalize the supply of BTC and ETH in the future?

Disclaimer: Not financial or investment advice. Any capital-related decisions you make are your full responsibility.

MEV wreaks havoc on Ethereum again 👹

MEV leads to losses for Ethereum users daily, but what happened this week was severe. Conic Finance, a protocol built on top of Curve, lost $3.3 million to a flash loan attack. 

The attacker took a flash loan of 20,000 ETH, launched their attack, and successfully made away with $3.3 million worth of ETH in a single block. 

Conic Finance has shut down, and it’s unclear if affected users will be reimbursed.

To avoid being victims of the MEV pirates, Nexus Mutual used CoW Swap for a huge 14,400 ETH trade - that’s $26.6 million! 

If there were no CoW Swap and Nexus Mutual fell victim to an MEV sabotage, it could have lost hundreds or thousands of ETH on that trade. By the way, CoW Swap uses intents to protect against MEV, and it appears to be the only viable defence against MEV today. But it looks like that’s about to change.

Ethereum gets ready to fight MEV with fire 🔥

Ethereum researcher Justin Drake presented a solution to MEV that benefits all users on the network: burn it! 

Instead of the MEV revenue that ordinarily goes to stakers, that MEV money gets burned, making ETH overall more scarce. What’s even more fascinating is the same feature can knock out two birds with one stone - by burning any rewards validators receive from restaking as well!

This is massively bullish for ETH. The reduction in supply from burning MEV will lead to an estimated 500,000 reduction in ETH supply - every year! ETH is already deflationary, but this change would triple how fast Ethereum’s supply deflates. 

However, for the upgrade to go into effect, we need to wait for some prerequisites in this year’s Dencun upgrade (read more about that here).

The best part, MEV infrastructure is improving and happening fast. This week, Flashbots (the company behind most MEV tools) open-sourced their entire platform, making it easier for developers to build new MEV strategies. 

Flashbots is also building SUAVE, a marketplace for people to buy and sell MEV strategies. 

Shore up your defences with intents 🏗️

However, until the MEV Burn upgrade saves us, intents offer the best protection from MEV. We covered intents in a previous digest, but to recap: intents are ways to perform actions on-chain by specifying a result and letting experts determine the best way to make that happen. 

CoW Swap, the exchange we mentioned earlier, was the first exchange to offer intents on Ethereum.

Now, there’s a new challenger on the horizon. UniswapX just launched, offering an intents-based platform - and the kicker is it comes with zero fees! 

It’s currently on a waitlist system, so signing up is the best way to access it quickly. 

What does this mean for you? 🤔

MEV Burn makes Ethereum more deflationary while making the Ethereum network potentially less toxic from zero-sum gains. For one, stakers won’t be incentivized to extract MEV - after all, it gets burned instead of going into their pockets!

Until then, intents are changing the landscape of Ethereum. 

The largest trades right now are happening through intents - the savings are just too good. And more importantly, not using intents makes you vulnerable because your transactions are more easily identifiable and easier to exploit. 

If you’re performing high-value on-chain trades, using intents on UniswapX or CoWSwap might be a good tool in your trading toolbox.

Price analysis 📊

ETH's price isn't in its best spot yet, but it sure as hell is setting itself up for success.

Two weeks ago, we saw an attempt at breaking $2,000 as resistance. Unfortunately, this attempt was unsuccessful, and we saw ETH falling back to the mid $1800s. At first sight, it looks like the asset is headed back to test support at $1,740, but we have another trajectory in mind, and that's a second test of $2,000.

Note that Bitcoin is very close to hitting support at $28,750, and the technicals suggest we could bottom exactly at that level. Hence, ETH could bottom out somewhere around its current price, after which buyers can step in and push its price further to $2,000 and above. If you're interested in Bitcoin's price action, as well as our thoughts and trajectories for the market, check our latest weekly TA here.

Of course, BTC's failure to hold support will indeed result in ETH heading back to $1,740. In any case, only a break of either $2,000 or $1,740 accurately helps us predict the asset's next direction

Cryptonary’s take 🧠

Burning MEV will accelerate the deflation in total ETH supply. In fact, we may have already seen the peak of ETH’s supply - at the current 120 million mark. 

Every year, there would be about 800,000 less ETH once MEV Burn goes into effect. 

The supply shock would be dramatic - and it would be continuous! 

In 20 years, ETH may be around the 100 million mark, and by the time the last BTC is mined, the supply of both BTC and ETH might be equal! 

Now, think about a world with only 21 million ETH in circulation. That’s still a very long way off on the horizon, but we can’t help but imagine how it will impact the entire altcoins market.

As always, thanks for reading! 🙏

Cryptonary, out!