Simple Summary of the EIP
“A transaction pricing mechanism that includes fixed-per-block network fee that is burned and dynamically expands/contracts block sizes to deal with transient congestion” (Source)
The concept was initially proposed in 2018 by Vitalik Buterin (Source), and first formalized as an EIP by Eric Conner. Since then, it has been implemented in 4 clients, subjected to expert academic review, and is currently in the testnet proving phase. See here for an up-to-date list of resources maintained by Tim Beiko.
Why is signaling needed for something external to MakerDAO?
It is useful to measure community sentiment, especially when it will have varying impacts on Ethereum stakeholder groups; this includes the application layer. We are also reaching out to many other leading applications and tools, and will present our findings at the upcoming 1559 community panel on Feb 26th. Our results would be incomplete without the MakerDAO community’s position represented.
Client teams are far enough along in implementation and testing that a network upgrade potentially including 1559 has been tentatively scheduled for July 2021. In the unlikely event of a contentious chainsplit, MakerDAO would have to choose which chains to maintain the DAI system on. Clear, early signals from leading applications regarding their preferred featureset (eg. the chain that implements 1559 or not) will help to decrease uncertainty for the entire ecosystem leading to the upgrade.
While there is no exact precedent for this type of direct survey, given the scope of the change, we thought it important that application communities become familiar with the mechanisms that make 1559 work. It is not expected that explicit polling for EIPs will become common in the future.
- More predictable gas fees, reducing user overpayment
- “Shopping on Amazon is a lot easier than buying a house in a competitive real estate market. On Amazon, there’s no need to be strategic or second-guess yourself; you’re either willing to pay the listed price for the listed product, or you’re not” (Section 4.2)
- This will lead to better UX for users and applications
- Preventative maintenance to avoid possible future chain reorgs
- In conditions where fees significantly outweigh block rewards, there is an ever present incentive for block producers to carry out short term reorgs to capture as much value as possible. Burning the BASE_FEE removes this latent incentive.
- Read more here: On the Instability of Bitcoin Without the Block Reward
- Cements the role of ETH within the Ethereum crypto-economic system
- Burning the BASE_FEE adds a real and consistent cost to economic abstraction (paying for transactions out-of-band, or “off-chain”, in non-ETH assets)
- Will allow in-protocol congestion oracle
- Once EIP-1559 is live, it will enable a native congestion oracle via EIP 3198 - A useful tool for applications
- Technical complexity
- Reforming the fee market for a live, value bearing chain like Ethereum is no small task. All client level issues aimed to de-risk it are tracked here.
- Miners are largely opposed to it, and are threatening to make the upgrade contentious
- The BASE_FEE burn, an integral part of the system, has led to miner opposition because it will reduce their income.
- Lowering individual transaction fees
- Transaction fees are a function of supply and demand, and this EIP does not attempt to increase average available blockspace or alternatively, reduce demand.
- BASE_FEE burning is meant to punish miners
- Burning the BASE_FEE is the simplest mechanism to ensure the elastic blocksize is not gamed by miners. If not burnt, then miners could costlessly increase the blocksize while extracting maximum BASE_FEEs from users, and recoup their sent losses.
- Increasing ETH price
- While sometimes mentioned by proponents of this EIP, this is not a stated goal for any of the constituent mechanisms.
Thanks to the MakerDAO community for their consideration, we are looking forward to questions and discussion!
This poll will continue until Thursday 25th February and move on-chain on the following Monday, regardless of the off-chain signal outcome. This is so we can see MKR Holder response in addition to the community response.