The Future of MEV Redistribution in ZK-Rollup Tokenomics

Centralized sequencers in ZK-rollups like zkSync Era and Starknet are opaque profit centers. They capture 100% of on-rollup MEV (DEX arbitrage, liquidations) and cross-domain value (bridge arbitrage) with zero obligation to share with the protocol or token holders.

• Creates misaligned incentives vs. decentralization goals
• Leaves $10M+ annual MEV uncaptured for protocol treasury
• Forces L2 tokens to rely solely on transaction fees for value accrual

Decentralized sequencer sets, like those proposed by Espresso Systems, auction off block-building rights. The winning bid (MEV) is split between the sequencer node and a protocol treasury, directly funding the L2 token.

• Turns MEV from a cost into a protocol revenue stream
• Enables credible decentralization roadmaps
• Creates a natural sink for sequencer staking tokens (e.g., EigenLayer AVS)
• Compatible with zkSync, Arbitrum, and other rollup stacks

Value generated from arbitraging between an L1 (Ethereum) and its L2 (ZK-rollup) currently leaks to generalized searchers on the L1. The L2 protocol and its sequencer see none of this inter-domain arbitrage profit, despite providing the liquidity and state differential.

• LayerZero and Across bots capture bridge arbitrage
• L2 token captures no value from its own liquidity pools
• Creates economic dependency on a weaker, fee-only model

A ZK-rollup-native PBS where specialized builders bid for the right to construct a batch, with bids paid to a rollup-managed trust-minimized auction contract. This captures cross-domain MEV before it leaks to L1.

• zkSync and Polygon zkEVM could implement via upgrade
• Auction revenue funds prover subsidies or token buybacks
• Aligns with Vitalik's Endgame for rollup decentralization
• More efficient than post-hoc redistribution on L1

Simply capturing MEV isn't enough. Distributing it via token buybacks or staking rewards is blunt and inefficient. It fails to target the users who actually suffered from MEV (e.g., DEX traders hit by sandwich attacks) and does not improve the core user experience.

• Buybacks benefit passive holders, not active users
• Staking rewards centralize token ownership
• Misses opportunity to fund public goods like R&D or grants

Protocols can programmatically redistribute captured MEV back to the users who generated it. CowSwap-style batch auctions on L2s refund MEV to traders. UniswapX-like intent systems can route through the sequencer as the exclusive filler, with profits shared.

• User Experience as a Competitive MoAT
• Turns MEV from an extractive tax into a loyalty reward
• Can be funded directly from the sequencer/auction treasury
• Drives volume and liquidity to the rollup

Centralized sequencers in ZK-rollups like zkSync Era and Starknet are opaque MEV extractors. Users pay fees, but the protocol and its token holders capture zero value from the lucrative ordering rights.

• Value Leakage: Billions in potential protocol revenue lost to private operators.
• Centralization Pressure: Profit motive cements single-sequencer dominance, harming decentralization.

Protocols like Taiko and Kinto are pioneering permissionless proposer-builder separation (PBS) at the L2 level. Validators auction block-building rights, capturing MEV for the public treasury.

• Revenue Capture: MEV flows into a community-controlled treasury or staking rewards.
• Credible Neutrality: Transparent auctions prevent censorship and favoritism in transaction ordering.

Traditional fee-burn models (e.g., EIP-1559) destroy value instead of recycling it. Token holders see deflation, but active users and dApps get no direct benefit from the MEV their transactions generate.

• Inefficient Incentives: Burns don't fund public goods or improve user experience.
• Missed Flywheel: No mechanism to reward the ecosystem's most valuable actors.

Inspired by UniswapX and CowSwap, ZK-rollups can implement intent-based architectures where MEV is captured and redistributed as discounts or rebates to the users who created the opportunity.

• Direct Rebates: Users receive a portion of captured arbitrage or liquidation profits.
• Better Pricing: Solvers compete to give users the best net outcome, not just the best gross price.

Each ZK-rollup is a liquidity island. Cross-chain MEV (e.g., arbitrage between Arbitrum and zkSync) is captured by third-party bridges like LayerZero and Across, not the destination rollup's treasury.

• Value Extraction: Interop layers become the primary beneficiaries of L2 economic activity.
• Security Reliance: Trust assumptions shift to external messaging protocols.

Networks like Espresso and Astria offer shared, decentralized sequencer sets that multiple rollups can use. MEV from cross-rollup arbitrage is captured and distributed by the shared sequencer, which can be governed by rollup token holders.

• Unified Liquidity: Enables atomic cross-rollup bundles, capturing previously untappable MEV.
• Protocol-Owned: Revenue accrues to the shared sequencer network and its stakers, aligning L2 ecosystems.

A DAO controlling the MEV redistribution mechanism becomes the ultimate extractable entity. This creates a central point of failure and a massive bribe target for sophisticated actors like Flashbots or Jito validators.\n- Risk: Governance proposals can be manipulated to redirect MEV to a cartel.\n- Consequence: Tokenomics become predatory, eroding user trust and L2 adoption.

ZK-rollups with fast block times and centralized sequencing are vulnerable to the same MEV supply chain centralization seen on Ethereum L1. A dominant builder like Flashbots or bloxroute can capture the rollup's order flow.\n- Risk: Redistribution funds only a small, centralized set of professional searchers.\n- Consequence: Defeats the purpose of redistribution, recreating L1's inequitable MEV landscape.

Using sequencer profits from MEV to fund token buybacks or staking rewards creates a fragile, reflexive token model. If application activity and MEV volume decline, the token's primary value accrual mechanism collapses.\n- Risk: Token price becomes coupled with volatile, extractive MEV revenue.\n- Consequence: A death spiral where lower price reduces security/staking, further reducing network value.

Searchers will exploit price differences between the L2 and L1 (e.g., via UniswapX, Across). If the redistribution mechanism only captures internal rollup MEV, the most profitable cross-domain arbitrage flows escape the system entirely.\n- Risk: Value leaks to L1 block builders and bridges like LayerZero.\n- Consequence: Redistribution treasury is underfunded, failing to achieve its goal.

Aggressively redistributing MEV profits to token holders could be classified as a security dividend by regulators like the SEC. This is especially true if the DAO's treasury management resembles an investment contract.\n- Risk: The most effective tokenomic model attracts the highest legal risk.\n- Consequence: Forces protocol to neuter its mechanism, capping long-term value.

Sophisticated redistribution (e.g., CowSwap-style batch auctions, MEV-Share privacy) requires complex, novel cryptography and consensus changes. This increases protocol risk, development time, and potential for bugs, while offering diminishing returns for average users.\n- Risk: Over-engineering creates client fragmentation and smart contract vulnerabilities.\n- Consequence: Security is compromised for a marginal improvement in economic fairness.

Centralized sequencers in most rollups are opaque profit centers. They capture 100% of MEV (front-running, arbitrage) without any obligation to share value with the network, creating a misaligned economic model.

• Extracted Value: Billions in MEV flow to a single entity.
• User Harm: Opaque ordering leads to worse execution for end-users.
• Centralization Risk: The most profitable role remains a single point of failure and control.

Embed a Proposer-Builder Separation (PBS) auction, inspired by Ethereum's PBS, directly into the rollup's sequencing logic. Builders (like Flashbots, bloXroute) bid for the right to order the block, with proceeds flowing to a protocol treasury or a burn mechanism.

• Value Capture: Redirects sequencer profits to the L2's native token holders.
• Better Execution: Professional builders compete to provide optimal user outcomes.
• Composability: Can integrate with UniswapX and CowSwap for intent-based flow.

Use ZK-proofs to cryptographically verify the MEV captured on the L2 and refund a portion to users when they bridge back to L1. This turns a cost center (bridging) into a potential rebate, directly combating LayerZero and Across on user experience.

• User Alignment: Users are compensated for the value extracted from their transactions.
• Competitive MoAT: Creates a tangible economic benefit for staying within the rollup's ecosystem.
• Proof-Driven: Relies on the verifiable state of the rollup's sequencer/auction.

The ultimate redistribution mechanism is a sovereign treasury funded by MEV, governed by token holders. This treasury becomes a protocol-owned liquidity war chest for subsidies, security bounties, and grants, mirroring Olympus DAO mechanics but for L2s.

• Sustainable Funding: Creates a non-dilutive revenue stream for protocol development.
• Governance Utility: Gives the native token tangible cashflow and utility beyond gas.
• Ecosystem Flywheel: Treasury funds can bootstrap critical infra (oracles, data availability) to further reduce costs.