Stefanos Leonardos — Dynamics of the EIP-1559 Fee Market (ETHconomics @ Devconnect 2022)
Channel: ETHconomics Devconnect
Date: 2022-05-18

In this talk, we will present results from a thorough analysis of the EIP-1559 transaction fee market dynamic mechanism via a combination of tools from game theory and dynamical systems. We provide bounds on the step-size of the base fee update rule that suffice for global convergence to equilibrium and show that for larger step-sizes instability and even formally chaotic behavior are possible under a wide range of settings. Using on-chain data from the period after its launch, we then turn to evaluate the impact of EIP-1559 on user experience and market performance. Our empirical findings (backed by theoretical arguments from ongoing work) suggest that EIP-1559 achieves its goals on average. However, short-term behavior is marked by intense oscillations in block sizes (as predicted by our previous theoretical analysis) and slow adjustments during periods of demand bursts (e.g., NFT drops). To address this issue, we propose an alternative base fee adjustment rule in which the learning rate varies according to an additive increase, multiplicative decrease (AIMD) update scheme and provide evidence that such a scheme may constitute a promising alternative to the default EIP-1559-based format.