Burn-and-Mint MEV

In a BME model for MEV, a protocol like EigenLayer or a specialized sequencer captures MEV revenue (e.g., from arbitrage, liquidations). This revenue, often in ETH, is used to buy and burn the protocol's native token from the open market. The act of burning triggers the mint of a new, yield-bearing asset (e.g., a liquid restaking token) that is distributed to stakers. This creates a direct economic link between MEV profits and token value.

EigenLayer implements a BME-like mechanism for its restaking ecosystem. Operators who run Actively Validated Services (AVS) like MEV-Boost relays or rollups earn fees. A portion of these fees could be directed to:

• Buy and burn EIGEN tokens from the market.
• Mint rsETH or other Liquid Restaking Tokens (LRTs) as rewards. This aligns the success of the AVS network (and its MEV capture) with the scarcity and utility of the core protocol token.

Layer 2 rollups using a shared sequencer like Espresso or Astria can implement BME. The sequencer auctions the right to build blocks, capturing MEV. The revenue is then used to:

• Burn the L2's gas token or governance token.
• Mint a sequencer reward token for stakers. This transforms MEV, often seen as a negative externality, into a sustainable protocol-owned revenue stream that benefits the entire chain's ecosystem and reduces net token inflation.

The 'Equilibrium' refers to the target balance between burn and mint rates. Key parameters include:

• Burn Rate: Percentage of MEV revenue used for buybacks.
• Mint Rate: Amount of new yield-bearing asset created per unit burned.
• Target Price: A peg the mechanism aims to defend. If the native token price is below target, more is burned per unit of revenue, increasing scarcity. If above, minting slows. This creates a stabilizing feedback loop backed by real protocol earnings.

BME is often contrasted with traditional fee-and-mint or stake-for-fees models.

• Fee-and-Mint: Fees are distributed directly to stakers in the same asset (e.g., ETH), causing sell pressure.
• Burn-and-Mint: Fees remove the base asset (token) from circulation, potentially creating deflationary pressure, while minting a separate yield-bearing asset for stakers. This decouples staker rewards from direct sell pressure on the core token, aiming for better long-term value accrual.

Implementing BME for MEV introduces complex game theory:

• Oracle Reliance: The burn mechanism often requires a price oracle, creating a potential attack vector.
• Regulatory Scrutiny: Minting a new asset from burned collateral may have securities implications.
• MEV Volatility: Revenue is highly variable, making it difficult to maintain a stable equilibrium.
• Centralization Pressure: Large, sophisticated actors may dominate MEV capture, skewing rewards. Successful design must mitigate these risks through robust, verifiable on-chain logic.

The BME model's reward structure can incentivize validator collusion to manipulate the burn rate. A dominant cartel could:

• Artificially inflate transaction fees to burn more tokens, increasing their minting rewards.
• Censor or reorder transactions to extract Maximum Extractable Value (MEV) for the cartel's benefit, centralizing power and harming network neutrality. This creates a centralization risk that undermines the protocol's intended economic security.

The protocol's stability relies on the equilibrium price between the native token and the burned gas token. Attackers can exploit this via:

• Flash loan attacks to temporarily manipulate the token's market price, disrupting the burn/mint calculation.
• Oracle manipulation if the protocol uses external price feeds to determine the burn rate, leading to incorrect token issuance.
• Reflexivity risks, where a falling token price reduces network security spend (fees), further depressing price in a negative feedback loop.

Burn-and-Mint transforms MEV from a byproduct into a core validator revenue source, potentially degrading user experience. Validators are incentivized to:

• Prioritize arbitrage and liquidations over simple transfers, increasing latency for regular users.
• Implement transaction reordering and censorship to capture value, making the network less predictable and fair. This can lead to a two-tiered network where sophisticated bots outbid regular users for block space.

The BME model requires carefully tuned parameters (e.g., target burn rate, reward curve). Governance attacks pose a significant risk:

• A malicious proposal could adjust parameters to benefit a subset of validators at the expense of the broader token holders.
• Vote buying or governance capture could lock in suboptimal economic settings, making the system vulnerable to the aforementioned attacks. The security of the entire system is therefore contingent on the security and decentralization of its governance process.

Many BME protocols (e.g., Axelar, Chainlink CCIP) secure cross-chain communication. This concentrates risk:

• A successful 51% attack or cartel formation on the BME chain could compromise the security of all connected chains, allowing fraudulent message passing.
• The burn-and-mint token becomes a single point of failure. Its devaluation could reduce the economic security budget for the entire interconnected ecosystem, a systemic risk.

The BME model's tokenomics blur regulatory lines, creating legal risk for validators and users.

• Regulators may view the minted rewards as securities income, subjecting validators to compliance burdens.
• The burn mechanism could be interpreted as a transactional fee, potentially triggering money transmitter regulations. This uncertainty can deter institutional participation and create existential legal threats to the protocol's operation.

Maximum Extractable Value (MEV) is the total profit that can be extracted from block production through transaction reordering, insertion, or censorship beyond standard block rewards and gas fees. It is the foundational concept that burn-and-mint mechanisms seek to capture and redistribute.

• Sources: Arbitrage, liquidations, and front-running.
• Impact: Can lead to network congestion and increased costs for users.
• Role in B&M: The raw value that is identified, captured, and then burned or redirected.

A token burn is the permanent removal of tokens from circulation, typically by sending them to a verifiably unspendable address. This is a core action in the burn-and-mint cycle.

• Purpose: Creates deflationary pressure, increasing scarcity to support the token's value.
• Mechanism: In B&M MEV, the value extracted (often in ETH or stablecoins) is used to buy and burn the protocol's native token from the open market.
• Verification: Burns are recorded on-chain, providing transparent proof of the value removal.

Proof-of-Burn is a consensus or tokenomic mechanism where participants destroy (burn) cryptocurrency to earn the right to mine, validate, or receive rewards in a network. It's a broader concept that burn-and-mint MEV operationalizes for value accrual.

• Function: Uses destruction of value as a sybil-resistance and commitment mechanism.
• Contrast: Unlike pure Proof-of-Burn for consensus, B&M MEV uses burning specifically to capture and recycle external value (MEV) back into the protocol's economy.

Value accrual describes how economic value flows to and is captured by a token or protocol. Burn-and-mint MEV is a direct value accrual mechanism.

• Traditional Models: Value may accrue via fee revenue, staking yields, or governance utility.
• B&M MEV Model: Value accrues through deflationary buy-and-burn pressure funded by external, protocol-captured MEV. The "burn" creates scarcity, while the "mint" (of rewards or incentives) is often decoupled, creating a sustainable economic loop.

Searchers and Builders are the active agents in the MEV supply chain whose activities generate the value captured by burn-and-mint protocols.

• Searcher: An entity that runs algorithms to detect profitable MEV opportunities (e.g., arbitrage) and submits transaction bundles to execute them.
• Builder: A specialized actor that constructs complete, MEV-optimized blocks, often incorporating searcher bundles, to sell to validators (e.g., via MEV-Boost).

Their competition and efficiency directly determine the size of the MEV "pie" available for protocols to capture and burn.