AVS with MEV Redistribution vs AVS with MEV Burn: Value Capture

Stronger Validator Incentives: Directly rewards operators for block production and ordering. This attracts and retains high-quality validators, crucial for early-stage networks needing to bootstrap security. Example: EigenLayer AVSs can use this to compete for Ethereum stakers.

Inflationary Pressure & Speculative Dynamics: Rewards are often paid in the native token, increasing sell pressure. This can lead to volatile tokenomics and misaligned incentives if validators dump rewards. Requires sophisticated token emission schedules to manage.

Deflationary Tokenomics & Protocol-Owned Value: Permanently removes MEV value from circulation, creating a scarcity driver for the native token. The burned value accrues to all holders, aligning long-term stakeholders. This model is favored by mature DeFi protocols like those built on Ethereum post-EIP-1559.

Weaker Direct Validator Incentives: Validators only earn base staking rewards, which may be insufficient to offset operational costs during low-fee environments. This can lead to centralization risks as only large, low-cost operators remain profitable, potentially degrading network resilience.

Direct staker incentives: MEV profits are distributed to AVS stakers/operators, directly boosting their yield. This matters for protocols like EigenLayer where higher yields attract more restaked capital, strengthening the network's cryptoeconomic security. Proven to increase TVL and validator participation.

Regulatory and tax complexity: Distributing profits can create taxable events for stakers and may attract regulatory scrutiny as a security. This matters for protocols targeting institutional validators who require clear compliance frameworks. Adds operational overhead for tracking and reporting.

Deflationary tokenomics: Permanently removing MEV revenue from circulation reduces token supply, creating long-term scarcity. This matters for protocols like Ethereum post-EIP-1559 where burn has demonstrably supported price stability. Aligns value with token holders, not just active stakers.

Reduced immediate staker yield: Stakers do not receive direct MEV payouts, potentially making the AVS less attractive versus redistribution models. This matters for bootstrapping security in competitive markets like new L2s or oracle networks. Can lead to slower initial adoption of the AVS.

Direct staker yield boost: MEV profits (e.g., from arbitrage, liquidations) are distributed to stakers, directly increasing their APR. This is a powerful incentive for attracting and retaining capital, crucial for new networks like EigenLayer AVSs or AltLayer. Higher yields can lead to faster TVL growth.

Inflationary token pressure: Distributing MEV as new token rewards increases the circulating supply, which can dilute token value if not offset by equivalent demand. This model can struggle in bear markets where yield chasing is less prevalent, as seen with some early DeFi incentive programs.

Deflationary tokenomics & value accrual: Burning MEV revenue (e.g., converting profits to native token and destroying it) creates a direct, deflationary buy pressure. This aligns long-term token holder and protocol health, a model validated by Ethereum's post-EIP-1559 fee burn, which has removed over 4.5M ETH from supply.

Weaker short-term staker incentives: Stakers do not receive MEV rewards directly, making the base staking yield less competitive versus redistribution models. This can slow initial validator set bootstrapping, a significant risk for AVSs competing for security (e.g., versus Oracles like Chainlink or Rollups like Arbitrum).