Thread by @EthereumPools

Many of you wonder, what will happen with #Ethereum REWARDS after The Merge, aka switch from PoW to PoS. An ELI5 thread on what % to expect and where it's coming from 🧵👇

If you are new here, let me tell you that Ethereum is soon to be upgraded from Proof Of Work to Proof Of Stake.

No mining or wasting electricity 👍
Network cheaper to maintain 👍
Less issuance 👍
Very low hardware requirements, fitting in a box on your desk 👍

Wen? 🤔 99.9% this year 🗓️. The software is almost ready and even some testnets have already been upgraded.

In PoS the so-called "validators" are the new miners ⛏️, and they take care of securing the network by proposing blocks and voting for them.

Validators will take over the network once "The Merge" 🐼 happens, with the responsibility that comes with it.

But you may think, how do I become a validator? 🤔

Well, you "just" need to lock 32 Eth🔒 and run some software that fits on your desk 💻 and is affordable.

But why would I run a validator? Well...
1⃣ You earn rewards
2⃣ You help decentralize the network
3⃣ You have the power of modifying the blockchain by proposing blocks. No one will ever censor you.

Let's focus on 1⃣. Since "money does not grow on trees" 🌳, it's very important to understand where the rewards are coming from.

In most PoS blockchains, all rewards come from, guess,... 🖨️🖨️💵💵.

Yes, "the printer go brrr".

In #Ethereum it's sometimes the case, but there is also a mechanism to burn Eth. We care about the net issuance ➕➖=📉

So, we can classify REWARDS into 4 categories. Not an official classification though:
1⃣ Consensus Rewards ⛓️
2⃣ Execution Rewards 🖥️
3⃣ MEV Rewards 🤖
4⃣ Decrease in Eth supply 🔥

1⃣ Consensus Rewards ⛓️: Earned by the validators in the beacon chain for fulfilling different duties. Note that these rewards "live" in the beacon chain and are not spendable until the Shanghai fork 🍴.

They are divided into:

-source/target/head: aka "attesting". This is a small reward earned every epoch (6ish minutes). Around $0.02 now. $135/month, $1620/year.

-Participating in sync committees: Only 512 validators earn this at a time and are rotated once a day. Currently $0.1/epoch.

-Block proposals: Earned when the validator proposes a block. The more active validators the less chance to propose. Currently around 6/7 per year.

-Whistleblowing: If your validator finds someone misbehaving, you can whistleblow it to the network and you will receive a small reward. 32/512=0.0625 Eth

Want to know more about consensus rewards? @pintail_xyz has some great posts.

pintail.xyz/posts/modellin…
pintail.xyz/posts/beacon-c…

2⃣ Execution Rewards 🖥️: These rewards will be introduced after The Merge 🐼 happens. Since validators will be the new miners, they will get the tips that y'all paying when sending transactions.

Every time a validator proposes a block, it will get the sum of all tips paid by all the transactions contained in that block. Want to know more? See #EIP1559. You will be able to spend this Eth right after The Merge 🐼. Cool right?

Unfortunately for a single validator, this is something that happens 6/7 times a year on average, but according to @jgm post, last year some proposers got up to 10Eth per block. Not the norm though.

Want to know more about execution rewards? @AttestantIO has a great post explaining them and estimates what to expect after the merge, based on historical data.

attestant.io/posts/explorin…

3⃣ MEV Rewards 🤖: This is not a reward that is "per se" built into the protocol, but something on top that requires extra work. Since validators will be the ones proposing blocks, they will be able to re-order transactions, hence being able to extract value from it.

Reordering transactions is hard, so if you are a solo staker you may want to sell your blockspace ordering in an external market. @ObadiaAlex and Flashbots are doing a great job in order to mitigate the negative externalities that MEV brings into #ethereum.

4⃣ Decrease in Eth supply 🔥: After EIP1559 was introduced in the London HF 🍴, the BASE_FEE paid by your transactions, is burned 🔥. Depending on the amount, this makes Eth deflationary, so your Eth bags are worth more. Not a reward per se though.

Having all this, it's fair to assume that in a post-merge 🌎, the rewards should be around 15% with the current number of active validators.

🔺validators🔻rewards (fewer blocks + lower base_fee)
🔺DeFi activity🔺 rewards (tips + mev)

But one of the main differences between #Ethereum and other blockchains is that these rewards are not just 🖨️🖨️💵💵. There is also 🔥🔥. Which👏is👏very👏important👏.

After The Merge 🐼 it will be WAY cheaper to maintain #Ethereum security. PoW will be a thing of the past.

Next thread to come, #Etheruem penalties.