Ethereum announced EIP 1559, alongside four other proposals, as part of the London upgrade last August. The proposals represented efforts to change the network’s monetary policy.
Fast forward, it has been just over three months since Polygon followed Ethereum in implementing the Ethereum Improvement Proposal 1559. This proposal brought a new transaction fee model and, most notably, the concept of token burning.
The conception of EIP 1559
Before the London upgrade, Ethereum users suffered from extreme ‘gas fee’ volatility because of the first-price auction mechanism. This mechanism required users to bid their transaction fees. Miners would choose transactions with the highest bid fees, which often worked more in favor of whales as they were willing to pay more.
This became a huge shortcoming that other chains like Cardano, Avalanche, and Polkadot exploited as they sought a bigger market share. EIP 1559 addressed this by bringing a new mechanism that includes a priority fee and a base fee (for all transactions included in a block) which varies depending on the congestion state of the network.
The new mechanism does away with the drawbacks of the previous system by leveraging an automated bidding system. While it didn’t change how the fee sum is determined (depends on demand and supply forces), it introduced great visibility and clarity around gas fees.
Burning of tokens
The proposal also mandated that a fraction of the transaction fee be burned, effectively removing this volume from circulation. In addition to increasing the speed of mining Ether, token burning reduces the circulating supply of the crypto asset, making it deflationary.
It is, however, worth noting that the new burning mechanism doesn’t completely make the native token Ether deflationary rather, it is one of the elements that make it so. Indeed, industry experts contend that Ether will become fully deflationary after the network completes the transition to proof of stake consensus.
“Taken together, EIP-1559 and the move to PoS will have a major impact on miners and the economics of Ethereum, but at the moment, the upgrade alone does not,” CoinShares’ Meltem Demirors told CNBC Make It.
More than 2 million ETH burned so far
The amount of Ether burned since August has now eclipsed 2 million, data from ultrasound.money shows. In the last 30 days, more than 134,423 ETH has been burned at an approximated burn rate of 3.11 ETH each minute. Overall, the all-time average burn rate stands at 6.10 ETH per minute, with just over 2,000,941 ETH (around 7.142 billion) having been burned so far.
NFT marketplace OpenSea tops the burn leaderboard as the biggest contributor with 230,044 ETH of the total chunk. ETH transfers are in second place above DeFi protocol Uniswap V2.
Data from Watch the Burn shows that the amount of ETH burned daily has been on a decline since peaking on 10th January.
2086.60 ETH was burned on 12th March – the lowest ever figure recorded.
January also recorded the largest volume of ETH burned, with nearly 400,000 ETH going to the burn address that month, followed by November.
Unsurprisingly, January saw the lowest net issuance, with November being the second-lowest.
More than 600,000 MATIC burned over the last three months
Following the successful integration of EIP 1559 on Ethereum, the decentralized Layer 2 scaling solution, Polygon, announced that it would adopt the same. The blockchain’s public interface shows that the network has burned more than 607,109 MATIC tokens.
Just as is the case with Ethereum, the proposal helps reduce the circulating supply of the MATIC token while cutting down on instances of users incurring ridiculous fees. The Ethereum sidechain estimated that 0.27% of the total MATIC supply would be burned annually.
To learn more about Ethereum or Polygon, visit our Ethereum or Polygon guides.
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