Introduction of EIP 1559 like fee burning?

Network
#1

I think it may be beneficial to the network to have some additional “fuse sinks” one that could be good for network growth would be an EIP 1559 (EIPs/eip-1559.md at master · ethereum/EIPs · GitHub) like transaction fee burn.

I’m not sure it needs to be as complicated as ETHs EIP proposal (dynamic fee per block). But I think a mechanism to burn some (or all) of a transactions fee would be a good way to keep inflation under control whilst keeping the block rewards at the current rate (thus keeping both delegates and validators happy).

What’s peoples options on this?

2 Likes
#2

Interesting idea, not sure I fully understand the proposal though!

Both eth and fuse miners get inflation rewards for mining a block. In Fuse we can just reduce the yearly allocation (currently 5%) to X% - that’s a simple way to reduce inflation amount, and therefore miner reward.

5% is probably too much at the moment, maybe 2-3% is a better figure at present. Changing it on a yearly basis is probably sufficient, and ideally it should be voted on by validators.

At present, I don’t think the Fuse model should use inflation for anything other than miner rewards.

Re: tx fees - are these related to inflation? Aren’t they just the gas cost of a tx on the network. I don’t see a reason for burning them as they are the payment to the validator for their services.

1 Like
#3

@RB_1010 the Github improvement proposal shared by @Andy above is focused primarily on a user problem that doesn’t currently affect Fuse Network i.e. the auction-based structure means that transactions get out of control when ever there is increased activity on the network as people (and the wallets they use) automatically start over bidding to ensure their transactions are validated first. This also means that there is a slightly perverse incentive for miners/validators collude in order to clog the network and drive up fees which will ultimately all come back to them anyway. Implementing a “base fee” model instead of auctions stops the overbidding. Burning a large chunk of the fees reduces the incentive to clog the network. Instead users “tip” miners in order to get their transactions validated quicker.

However, there is a hidden game changer in the EIP 1559 proposal. It reduces inflation. And, if enough ETH is burned, it could even lead to deflation by countering issuance.

This substack from bankless explains how proposal 1559 could affect monetary policy (with numbers): The Final Puzzle Piece to ETH’s Monetary Policy - Bankless

Whether it is reducing the yearly allocation rate or burning fees, I think it’s ultimately about reducing FUSE inflation, hardening the underlying asset and making it more valuable on a per unit basis. Both are good proposals and both could be implemented. Burning fees is a little more sophisticated because inflation (or deflation) is directly impacted by network activity.

#4

Hi @Robert_Miller - agree reducing inflation is required, and the asset value needs to be hardened.

But, as you said, EIP1559 is to solve a problem Fuse network doesn’t suffer from, so I’m not sure the reason to implement it. Is it possible for Fuse validators to somehow game the tx fees?

Basing inflation/defaltion on tx volume (by burning fees) takes inflation out of the hands of a DAO. It’s then impossible to manage should one want to. With variable inflation comes uncertainty, which is never a good thing for any participant on the network.

Overall, I think the network can already handle reducing inflation to 0, and even (probably) setting a maximum amount of tokens in the future. So why introduce a variable tx fee burning?

I may be missing something here?

#5

Very valid points @RB_1010. Ultimately I think a majority of us agree that reducing inflation is a priority mid to long term. This thread serves as more of a thought exercise based on industry benchmarks. I like the idea of somehow setting a maximum amount of tokens in the future. 5% inflation is also too much and needs to be reconsidered. What I personally like about the fee burning mechanism is that it allows hardening to be impacted directly by increased activity on the network as opposed to just being subject to governance by stakeholders. We have other more immediate network priorities to take care of in the meantime such as increasing the current fee paid by first operators. The hardening conversation will be ongoing…

#6

Yeah, interesting idea the ‘automated’ fee burning based on tx rate. Mimics inflation/deflation cycle in fiat currencies, but not sure if that’s a good or bad thing! Runaway inflation is a big problem, and is pretty much impossible to stop once started - there’s no loyalty in crypto, money moves elsewhere at the first sign of trouble. A fixed, low inflation rate (reviewed yearly) will give more stability.

Probably need to think about reducing inflation when TVL reaches a certain amount - $10m seems about right. Drop it to 1.5 - 2%, inline with global avg inflation.

#7

Hi Guys,

Sorry haven’t kept upto date with this all the emails were going to my spam. I think like @Robert_Miller mentioned the real gem in 1559 is the fee burning this allows for a deflation with the amount being deflated proportional to network activity this will help keep compound inflation under control in the long term. Like you both I think the current rate of inflation isn’t sustainable.

Another point to consider is a fee burn will help reduce “cycling” of fuse from organizations who use fuse as a platform and also run a validator (effectively cycling there fuse back to themselves).