EIP-1559 on Polygon

Overview

The London Network Upgrade will happen on Ethereum soon and EIP-1559 is among the major changes in it. Polygon intends to adopt these changes into their network to remain compliant with the Ethereum network and tooling.

The EIP-1559 aims to change the transaction pricing mechanism to include a fixed-per-block network fee that is burned. It also aims to change block size dynamically to deal with transient congestion.

Problem

As per the EIP-1559, the transaction fee is split into a basefee and a priority fee. The basefee is automatically adjusted based on the last block and is burned. The priority fee or the tip is given to the miner. This means that some ether is burned after each block, inflating the value of each ether.

On Polygon, we have a fixed token supply of MATIC as opposed to a more nuanced supply of ETH on Ethereum. Burning MATIC would mean restructuring payouts like the total checkpoint reward. We want to implement EIP-1559 and address transaction fee volatility without burning the basefee immediately. The burning can be decided later through DAO.

Proposed Solution

We propose that instead of burning the basefee, we transfer it to our new contract account which will be governed by DAO, and hence the community can together decide how to spend it.

To understand why this works, let us briefly discuss why burning is the accepted strategy on Ethereum. The core idea is to remove the miner incentive to manipulate transaction fees in order to gain more revenue. By burning the fee it is ensured that the miner has no incentive to superficially inflate the prices. On the other hand, burning ensures that each token holder receives a share of it as it inflates the price of the asset.

Another strategy could be not burning but distributing the fee to future miners. Although this idea does not increase the token value for all token holders, this nevertheless removes the incentive for miners/validators to cheat by artificially inflating transaction fees. In particular, it can be shown that this strategy ensures:

  • Myopic validators who are focused on short-term revenue will maximize their utility.
  • Under the assumption that the basefee is not excessively lower than demand, this is an optimal strategy for users submitting transactions.
  • Disincentivizes off-chain collusion between the user and the validator.

We argue that our proposed strategy of depositing the funds to the contract is akin to the strategy of paying future validators. This is because the DAO will be able to spend the fund on improving and maintaining the network, yielding better long-term gains for all validators. It also ensures that all token holders will benefit too, without having to burn tokens and inflate value.

Edited to Add
We want to emphasize that the basefee will be sent to a new contract. The contract will be controlled by DAO. The entire community can then decide whether to burn it, transfer it to only validators or submit new proposals about how they want to spend this fund.

Also added clarification about the burning of MATIC. At this point, this is just a proposal and we are actively looking for feedback from the community about how this can be improved and other possible alternatives that can be pursued.

16 Likes

Can anyone explain why eth burning is problem for matic network ?
Why to implement eip 1559 in matic network, problem statement is not clear.

Will this change help in reducing matic gas fees too?

In near future matic gas fee may increase with matic full blocks seen recently,
will the implementation of EIP 1559 help in decreasing matic gas fees?

If the answer is yes,
Its implementation is recommended

But
Burning of token is highly NOT recommended.

Moreover, 10 billion total supply is right for future mass global adoption. I might hav recommended more if i had the chance.

Channelling to DAO for future developments on matic is the best solution as of now…

Other suggestions are welcomed too…

Main aim is to Scale to the level where kids in Slums and villages can use smart contract dapps without worrying about fees.
This is why i invested in matic.

5 Likes

Burning is good idea so that it follows ethorioum and price goes up for all investors since we have less fee it won’t burn as much compared to euthorium …still it follows main net

7 Likes

As a Matic holder I would like tokens to be burnt as it increases the value of my investment year on year. I’m also partial to a 50/50 split arrangement where 50% goes to Matic to run network as proposed and 50% is burnt allowing benefits of both scenarios.

3 Likes

Burn = store of value: better for investors… ETH price to go up, so should MATIC. Best stay together. Investors deserve price increase as risk/reward.

5 Likes

I like the idea but have some basic questions.

How does governance on Polygon work?
Would this require core dev team to reroute resources to this? Away from Rollups and building that out?
What’s the estimated time, testing, and funding for this?

2 Likes

Instead of depositing MATIC into the DAO i propose to exchange the base-fee (in MATIC) into ETH and put it into the DAO.

This would diversify the funds and would proof a strong commitment to the Ethereum ecosystem.

1 Like

You could consider an alternative use (rather than sending it to a treasury) that supports MATIC liquidity primarily. This would be a first in blockchain.

Send the MATIC to a smart contract that interacts with a MATIC-ASSET (e.g. MATIC-USDC) pair on an AMM as follows:

  1. Users send only the asset to the smart contract.
  2. The smart contract joins it with MATIC using the AMM to create LP tokens (if these LP were given to the user they would be 50% discounted).
  3. Require users to send more ASSET token than needed to get LP tokens so that the discount is less than 50%.
  4. The LP tokens are either locked for a period (a kind of cost in lieu of the discount offered) or, alternatively, users farm more MATIC the longer they wait to unstake their discounted LP tokens.
  5. The additional ASSETs (over that needed to get LP tokens at a 50% discount) are sent to the treasury for Polygon’s DAO to decide what to do with.

In this way, these tokens support the ecosystem by safeguarding and promoting the depth of a core MATIC liquidity pool rather than just by supporting the MATIC team with more money to “do stuff with”.

We would be happy to code and push a repo for this to the community if desired for testing etc.

7 Likes

this is absolutely absurd. anyone who is in favor of this is completely blind. Who controls the dao? oh yeah binance & matic team. who controls the entire network? the two validators with majority stake…binance & stakin…people in favor just like to line the pockets of binance and matic team even more. dont be dumb community, time to wake up and smell the roses.

6 Likes

BURN the tokens - it will increase the value of our tokens.
We don’t want to enrich DAO anymore, DAO is controlled by Binance and Polygon team - they have enough money already.
Just burn the tokens so that Matic price goes up.

8 Likes

It would be helpful to understand better the “legal and regulatory consequences” of burning the basefee, as well as how hard it would be to restructure payouts. Burning a part of the fee helps all holders transparently and equally so I would think that would have wide community support. Depositing the funds to the foundation contract could work, but I think we would all like greater clarity on how that would work in practice.

1 Like

Simple think is do best for matic as like flow on ETH and do burn for get better value of token.

4 Likes

1st solution:
Instead of moving it to foundation contract account… why cant we return the base fee to the people staking the matic tokens. That way even though investors wont see any price increase of the token , they get more tokens and realize value.

2nd solution:
Create a governance model where people get voting power depending on the amount of staked tokens in matic wallet and are rewarded for voting the proposals by community.
(1/2 base fee for voting rewards and 1/2 base fee for implementing proposals)

I understand burning fixed supply coin in not a viable option. But giving authority to community takes away decentralization. If the basefee is generated by people using matic… then the people holding the tokens should be rewarded

If ETH burns and MATIC doesn’t, Investors will Flee to ETH. ETH token price will increase, while MATIC won’t. Easy to swap out

Dont need a SLUSH FUND for the handful of DAO controllers. Need token price increase for all investors who have exposure to MATIC

5 Likes

Another solution is that please create blockchain for exchanges while transfer fund to exchange to exchange and exchange to wallet.

As an early investor and a big fan of MATIC please burn MATIC tokens. The above poster is right people will flee MATIC with any other structure proposed. Do we get to vote on this as token holders?

6 Likes

Will lowering the fee even more not create an issue that it will be easy for actors to ddos or spam the network like we saw during the iron.finance attack?

I personally favor burning the tokens. Creating scarcity is always a boon for investors. Regarding operational mechanics, I don’t see how this would be a problem for Matic.
Another solution would be to remove the fee tokens to a multi key locked LP that acquires interest on it’s own. The aim would benefit DAO and also benefit holders if the team only spent the interest made and not the base deposited LP. This essentially “burns” the tokens, and would also benifit you by earning interest. This could be easily tracked and monitored and could be a nice solution for holders from the beginning like me as well benefit the devs. Thanks.

5 Likes

I like the idea of a “soft burn.” 50% of base fee gone outright, the other 50% gets locked up for a period of time (quarter, six months, year) in interest bearing account. Donate interest to charity and release “matured” tokens to stakers

5 Likes