Mainnet 3.0 Update — TFUEL Burning and Transaction Fee Increase
By: Theta Labs
Tags: Cryptocurrency, Staking, Thetadev, Blockchain

As we march towards a June 30 release of Mainnet 3.0, a key protocol extension is the introduction of TFUEL burning where Elite Edge Nodes will burn at least 25% of each TFUEL payment to the network. In addition to this, network transaction fees and smart contract fees are also burned taking these TFUEL perpetually out of circulation.

In order to better align value with the transaction volume on Theta blockchain, a moderate increase in the gas fee on Theta protocol is necessary. Currently, the fees on Theta network are near zero, and after the proposed increase would still be sufficiently low and cost effective for smart contracts and Dapps with transaction fees of 0.3 TFUEL for send transactions, 20 TFUEL to deploy a smart contract, and 1 TFUEL to interact with a smart contract. The table below shows the estimated fees in USD based on today’s TFUEL price for Theta before and after the update, along with Ethereum for comparison:

While Theta transaction fees increase, they are still 90% to 95% lower than the current fees on Ethereum, making Theta more affordable to transact and build smart contracts. This increase in fees will more closely align token utility value with usage of the Theta blockchain. As more smart contracts are deployed on Theta including video platform rewards and micropayments, NFTs, DeFi and other Dapps, significantly more TFUEL will now be burned by usage of Theta blockchain.

As reference, today’s Theta network processes approximately 100,000 transactions per day with less than 4% being NFT mint and buy-sell transfer interactions via smart contracts. With our planned growth for the ThetaDrop NFT marketplace, licensing of our platform to third-parties and other expansion plans, we forecast that NFT interactions with Theta smart contracts alone will reach 600,000 transactions per day, at which point nearly 250M TFUEL will be burned per year, cancelling out the majority of annual TFUEL inflation.

As part of Mainnet 3.0, TFUEL staking will also be introduced serving as a temporary TFUEL sink in addition to transaction and network fees permanent sink, so in the long-term we anticipate a deflationary model as more TFUEL is burned and permanently taken out of circulation. Ultimately, this will lead to the most optimized and balanced state where TFUEL utility value is maximized and stable.

Since launching Mainnet 1.0 in the Spring of 2019, transaction fees have been set low on Theta blockchain when the majority of Validator Nodes were run by Theta Labs. Now, the protocol is quickly approaching a fully decentralized state with the addition of CAA as an Enterprise Validator along with Google, Sony, Samsung, Binance, Gumi, Blockchain.com and a private equity institutional group. Theta Labs is running fewer than half of the validators and is staking less than a third of the total amount of THETA. While this is a positive for Theta protocol as a whole, a decentralized network can become more vulnerable to certain attacks than one with some centralized controls. Specifically, an attack spamming small transactions could flood the network and slow or even halt block production, which famously happened to Ethereum and other major blockchains in the past. As Theta gains more prominence these attacks could pose a challenge to Theta blockchain integrity as well. The best way to prevent these flood spam attacks is by a moderate increase in the gas fee on Theta protocol, which still keeps fees far lower than on Bitcoin or Ethereum, but high enough to make it costly to attempt an attack. In this way as an additional benefit, the increase in fees will make the Theta blockchain more robust and protected against attackers as it continues to become more decentralized.

The Theta transaction fee increase will be included in the next protocol update and hard-fork estimated to take effect around Thursday/Friday June 10–11, exact block height will be announced via our Twitter, Discord, and Medium.