MEV is inevitable on Bitcoin. The introduction of programmability via Ordinals, Runes, and Layer 2s like Stacks creates a state space ripe for extraction, mirroring the evolution of Ethereum.
bitcoins-evolution-defi-ordinals-and-l2s
Blog
Bitcoin MEV and Miner Revenue Stability
A cynical yet optimistic analysis of how the emergence of Bitcoin MEV, driven by Ordinals and L2s, is fundamentally altering the miner revenue model from a volatile subsidy to a stable, fee-based economy.
introduction
THE NEW FRONTIER
Introduction
Bitcoin MEV is the next major vector for miner revenue, transforming a static fee market into a dynamic, protocol-driven economy.
Stable revenue is a myth. Bitcoin's block reward halving creates a structural deficit; transaction fee volatility is the primary threat to network security, not MEV itself.
The opportunity is standardization. Unlike Ethereum's fragmented searcher-builder-proposer model, Bitcoin's simpler mempool architecture allows for more direct, miner-integrated solutions, as seen in early pools like ViaBTC.
Evidence: Post-halving, fees spiked to over 75% of miner revenue during Runes launches, proving fee markets are already volatile and MEV capture is a logical optimization.
thesis-statement
THE STABILITY TRADE-OFF
The Core Thesis
Bitcoin's MEV is a structural subsidy that stabilizes miner revenue but centralizes block production.
MEV is a subsidy. On Bitcoin, MEV from ordinal inscriptions and BRC-20 trading directly replaces dwindling block rewards, creating a predictable revenue stream for miners like Marathon and Foundry.
Stability centralizes power. This reliable income attracts institutional capital, concentrating hashrate and creating systemic risk, a trade-off Ethereum's PBS and builders like Flashbots aim to mitigate.
Evidence: Inscription-driven MEV contributed over 20% of miner revenue in Q1 2024, transforming fee markets and validating the economic necessity of programmable data on a base layer.
key-trends
MINER REVENUE STABILITY
The Three Catalysts of Bitcoin MEV
Bitcoin's predictable block reward halving creates a long-term revenue crisis for miners. MEV is the primary candidate for a sustainable, fee-based income stream to secure the network post-subsidy.
01
The Problem: Halving-Induced Revenue Volatility
The fixed block subsidy halves every 210,000 blocks, creating a structural decline in miner income that threatens network security. Fees must grow exponentially to compensate, but vanilla Bitcoin transactions are a commodity with low fee potential.
- Security Budget Crisis: Post-2040, subsidies become negligible.
- Fee Market Immaturity: Current fee spikes are sporadic and unreliable.
- Economic Vulnerability: Miners become hypersensitive to BTC price swings.
-50%
Revenue Shock
~2040
Subsidy Endgame
02
The Solution: Programmable Settlement via Layer 2s & Sidechains
Scaling solutions like Lightning Network, Stacks, and Rootstock create complex transaction graphs and conditional logic off-chain. Final settlement on Bitcoin's base layer bundles these actions, creating dense blocks ripe for ordering optimization.
- Dense Value Packets: A single L2 settlement can represent thousands of internal transactions.
- Cross-Chain Arbitrage: Bridges between Bitcoin L2s and ecosystems like Ethereum (via tBTC, WBTC) create lucrative arbitrage vectors.
- Fee Compression: Miners can extract value from the entire L2 ecosystem's activity.
1000x
Tx Density
$1B+
Bridge TVL
03
The Solution: Native DeFi Protocols & Ordinals
The rise of Ordinals, Runes, and protocols like BitVM-powered DEXs inject Ethereum-style financial primitives directly onto Bitcoin. This creates predictable, continuous MEV opportunities from arbitrage, liquidations, and NFT market dynamics.
- Persistent Fee Demand: Financial activity generates consistent, value-driven fee pressure.
- Sophisticated Order Flow: Limit orders, AMM swaps, and lending create clear MEV backrunning/frontrunning opportunities.
- New Revenue Class: MEV becomes a subscription-like income alongside block rewards.
$3B+
Ordinals Market Cap
New Asset Class
Runes & BRC-20
04
The Solution: Miner-Exclusive Orderflow & Auctions
Inspired by Flashbots on Ethereum, Bitcoin miners can adopt private mempools and sealed-bid block space auctions. This captures MEV value directly, prevents chain congestion from public bidding wars, and stabilizes income.
- Efficiency Capture: Miners monetize the true value of block space ordering.
- User Experience: Reduces fee volatility for regular users.
- Protocol Alignment: Turns miners into sophisticated market makers, aligning security with ecosystem growth.
~90%
Eth MEV Capture
Stable Premium
Auction Revenue
BITCOIN VS. ETHEREUM
The MEV Revenue Shift: Data Doesn't Lie
Comparative analysis of MEV revenue impact on miner/validator income and network stability.
| Revenue Metric / Feature | Bitcoin (Post-Halving) | Ethereum (Post-Merge) | Solana (For Context) |
|---|---|---|---|
Avg. MEV/Block Revenue Share | ~0.5% | ~10% | ~5% |
Primary Revenue Source | Block Subsidy + Tx Fees | Tx Fees + MEV | Tx Fees + MEV |
Block Time Finality | ~10 minutes | ~12 seconds | ~400 ms |
Native MEV Auction (e.g., PBS) | |||
Dominant MEV Strategy | Time-Bandit Attacks | Arbitrage, Liquidations | Arbitrage, JIT Liquidity |
Annualized MEV Revenue | $50-100M | $1-2B | $200-400M |
Fee Revenue Volatility (30d Std Dev) | Low | High | Very High |
Settlement Assurance for Users | Highest (PoW) | High (PoS + LMD-GHOST) | Moderate (PoH) |
deep-dive
THE REVENUE ENGINE
The Mechanics of Extraction: From Simple to Complex
Bitcoin MEV has evolved from simple arbitrage into a sophisticated, multi-layered revenue stream that directly impacts miner economics and network security.
Arbitrage is the foundation. The primary Bitcoin MEV is on-chain arbitrage, where miners reorder transactions to capture price differences between centralized exchanges and decentralized protocols like the Liquid Network. This activity is deterministic and low-risk, providing a direct subsidy to mining pools.
Complexity emerges with inscriptions. The introduction of Bitcoin Ordinals and BRC-20 tokens created a new MEV frontier. Miners now extract value by front-running high-fee inscription transactions or reordering blocks to win rare sat auctions, adding a speculative, fee-driven revenue layer.
Stability versus volatility. Unlike Ethereum's volatile, auction-based MEV, Bitcoin's PoW consensus and fixed block space create more predictable extraction. This transforms MEV from a parasitic tax into a structural subsidy that smooths miner revenue, especially post-halving.
Evidence: Analysis from Galaxy Digital shows MEV contributed over $200 million to Bitcoin miners in 2023, with revenue share spiking during periods of high Ordinals activity, proving its role as a critical, non-inflationary income stream.
protocol-spotlight
BITCOIN MEV & MINER ECONOMICS
Builder Spotlight: Who's Capturing the Value?
As Bitcoin's fee market matures, new players are emerging to extract and stabilize value from block production, challenging the traditional first-price auction model.
01
The Problem: Volatile Revenue, Inefficient Auctions
Bitcoin's simple fee market creates boom-bust cycles for miners and leaves user value on the table.\n- Post-halving, block rewards shrink, making fee income critical.\n- First-price auctions lead to overpayment and network congestion spikes.\n- Uncaptured MEV from arbitrage and liquidations exists but is opaque and inefficient to capture.
>50%
Fee Volatility
$100M+
Annual MEV
02
The Solution: MEV-Boost for Bitcoin
Protocols like Lava Network and Babylon are building relay and builder infrastructure to separate block building from proposal.\n- Enables competitive bidding for block space, increasing miner revenue.\n- Introduces proposer-builder separation (PBS) concepts from Ethereum.\n- Allows for specialized builders to optimize for arbitrage, liquidations, and transaction ordering.
20-30%
Rev. Uplift
~2s
Bid Window
03
The Arbiter: Time-Based Fair Ordering
Projects like Bobcat (from Bison Labs) implement a first-come-first-serve mempool to neutralize frontrunning.\n- Uses Bitcoin-native opcodes (OP_CAT) for commit-reveal schemes.\n- Protects users from toxic MEV like sandwich attacks.\n- Stabilizes fees by reducing speculative bidding wars for priority.
~0ms
Frontrun Latency
FCFS
Fairness
04
The Capital Layer: Staking for Security & Yield
Babylon and Stroom leverage Bitcoin as a staking asset to secure other chains or provide liquidity.\n- Unlocks yield on idle BTC, creating a new revenue stream.\n- Provides cryptoeconomic security to PoS chains via restaking/slashable deposits.\n- Creates a sustainable, fee-generating role for BTC holders beyond passive holding.
5-15%
APY Target
Billions
BTC Locked
05
The Aggregator: Intent-Based Swaps
SatSwap and other DEXs on Bitcoin layers (e.g., Merlin Chain) abstract complexity through solver networks.\n- Users submit intent ("swap X for Y"), solvers compete for best execution.\n- Captures and redistributes MEV (backrunning arbitrage) to users as better prices.\n- Mirrors the UniswapX and CowSwap model, moving auctions off-chain.
1-5%
Price Improvement
Solver Net
Architecture
06
The Endgame: Stable Fees & Miner DAOs
Long-term, sophisticated block building leads to fee smoothing mechanisms and collective bargaining.\n- Miner DAOs could emerge to collectively set fee floors and share MEV revenue.\n- Derivatives markets (hashrate futures, fee swaps) hedge volatility for miners.\n- Transforms miners from commodity producers into financial infrastructure operators.
Stable
Fee Target
DAO
Governance
counter-argument
THE INCENTIVE ARGUMENT
Steelmanning the Opposition
Critics argue Bitcoin's MEV is a necessary, stabilizing force for miner revenue and network security.
MEV is a subsidy. It provides a predictable, fee-based revenue stream that supplements the fixed block reward. This directly counteracts the volatility of Bitcoin's price and the long-term decline of the block subsidy from halvings.
Removing MEV destabilizes security. Without this income, miners face greater revenue uncertainty. This increases the risk of hash rate exodus during bear markets, making the network more vulnerable to 51% attacks.
Ethereum's PBS is instructive. The transition to Proposer-Builder Separation shows that formalizing MEV extraction is possible. Protocols like Flashbots SUAVE aim to democratize access, suggesting MEV can be managed, not eliminated.
Evidence: Post-Merge, Ethereum validators derive ~10-20% of rewards from MEV. This demonstrates its role as a critical revenue component for proof-of-work and proof-of-stake systems facing diminishing issuance.
risk-analysis
BITCOIN MEV & MINER REVENUE
The Inevitable Risks and Centralization Vectors
The transition from predictable block rewards to volatile fee markets exposes systemic fragility and centralization pressure.
01
The Block Subsidy Cliff
Post-halving, miner revenue becomes dominated by transaction fees, creating extreme volatility and security budget uncertainty. This forces consolidation among the most efficient operators.
- ~90% of revenue from fees post-2040
- Hashrate volatility threatens network security
- Centralizes mining to entities with lowest marginal energy cost
~90%
Fee Reliance
2040
Cliff Horizon
02
The Opaque MEV Supply Chain
Bitcoin MEV is opaque and manual, dominated by a few large mining pools and proprietary order flow deals. This creates a two-tier system that centralizes profit and control.
- F2Pool, Foundry, Antpool control majority of hashrate
- No PBS (Proposer-Builder Separation) for fair access
- Private mempools and off-chain deals exclude retail
>65%
Pool Control
0
PBS Implemented
03
Time-Bandit Attack Vectors
The ability to reorg deep blocks for profit ('time-bandit attacks') becomes economically rational with high fee blocks, threatening settlement finality. This risk is amplified by mining pool centralization.
- Incentive to orphan blocks with $1M+ in fees
- Longest-chain rule provides no protection
- Centralized pools have greater reorg capability
$1M+
Attack Threshold
High
Finality Risk
04
Ordinals & The Fee Market Distortion
NFT-like inscriptions (Ordinals, Runes) create sporadic, high-fee demand spikes. This unpredictability advantages sophisticated miners with advanced block building, further marginalizing smaller players.
- $240M+ in total inscription fees to date
- Fee spikes create winner-take-all block races
- Rewards specialized, capital-intensive mining ops
$240M+
Inscription Fees
Sporadic
Revenue Model
future-outlook
BITCOIN'S REVENUE SHIFT
The 2024-2025 Outlook: MEV as a Core Primitive
The post-halving environment forces Bitcoin to formalize MEV extraction, transforming it from a network bug into a critical revenue stream for miners.
MEV formalizes Bitcoin's revenue. The 2024 halving slashed block subsidies, forcing miners to seek alternative income. On-chain MEV auctions and off-chain orderflow deals will become standardized, moving revenue from opaque backroom deals to transparent, protocol-level mechanisms.
Stability requires programmable execution. Bitcoin's static scripting language limits complex MEV extraction, unlike Ethereum's Flashbots SUAVE or Cosmos Skip Protocol. This technical gap creates a market for Layer-2 MEV relays and sidechain auction houses that bundle and settle value back to the base chain.
Ordinals and Runes are the catalyst. These protocols introduced native Bitcoin DeFi primitives, creating the first sustainable on-chain MEV opportunities. The competition for inscription placement and token launch sequencing demonstrates a clear demand for fair, efficient block space allocation that MEV infrastructure will service.
Evidence: Post-halving, transaction fees spiked to over 75% of miner revenue during peak Ordinals activity, proving fee markets can subsidize security. Protocols like Lava Network and Babylon are building the data and staking layers to make Bitcoin MEV a measurable, liquid asset class.
takeaways
BITCOIN MEV & MINER ECONOMICS
TL;DR for Busy CTOs
Bitcoin's MEV landscape is fundamentally different from Ethereum's, creating unique challenges and opportunities for revenue stability.
01
The Problem: Volatile, Unpredictable Miner Revenue
Post-halving, block rewards shrink, forcing miners to rely on transaction fees. Without a stable fee market, revenue becomes a lottery, threatening network security.
- Ordinals/Inscriptions created fee spikes, but are unreliable.
- Base block reward will be <1 BTC by 2032, making fees primary.
- Revenue volatility disincentivizes long-term mining investment.
<1 BTC
Base Reward by 2032
>90%
Fee Share in Spikes
02
The Solution: Programmatic MEV via Covenants & OP_CAT
Bitcoin's MEV is currently manual and OTC. Future upgrades like OP_CAT could enable on-chain, trust-minimized MEV extraction, creating a predictable fee market.
- Enables DEX arbitrage and liquidations directly on Bitcoin L2s.
- Transforms sporadic 'tip' revenue into a consistent fee yield.
- Projects like BitVM and RGB are the foundational layers for this future.
OP_CAT
Key Enabler
L2s
Primary Venue
03
The Hedge: MEV-Smoothing Pools & Time-Based Auctions
Miners can pool blocks to average out MEV revenue, reducing variance. Time-based auction protocols (like Themis on Ethereum) could be adapted to create a first-price, per-block fee market.
- Smoothing pools provide stable payouts, akin to a mining SaaS.
- Auctions force arbitrageurs to compete openly, capturing value for miners.
- This turns MEV from a threat into a subsidized security budget.
-70%
Revenue Variance
First-Price
Auction Model
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