EIP-1559 base fees will impact the xDai ecosystem.

When EIP-1559

EIP-1559 is coming soon!
  • Network: xDai
  • Date: November 12, 2021 ~21:53 UTC
  • Block number: 19,040,000

What is EIP-1559

EIP 1559 introduces a BASEFEE for all blockchain transactions. This is a minimum fee charged for each transaction, and it is adjusted depending on network congestion (gas usage per block). When gas usage is high, the fee increases, and when it is low, the fee decreases.
Once collected, base fees are burned by the protocol rather than paid directly to the miners (or validators in the case of xDai). In addition to the base fee, a PRIORITYFEE can be added to a transaction as a tip to incentivize miners (validators) to include it in a block.

How 1559 will impact the xDai Chain

When EIP-1559 is implemented, xDai base fees will be burned within the protocol. This will result in a discrepancy between the xDai balance on the network and the DAI balance from Ethereum locked in the xDai bridge. To fix this imbalance, the corresponding amount of DAI on the mainnet will need to be used as well.
The initial plan is to use the corresponding amount of DAI to purchase and burn STAKE on Ethereum, thus decreasing the STAKE total supply and providing a deflationary mechanism for the token. The exact mechanisms for these buy-and-burn processes are still being finalized and are subject to change.
We will have a better idea of the impact of EIP-1559 once it is live and will proceed from that baseline to determine the best path going forward for long-term DAI usage.
Tx fees in September 2021 were more than 560K xDai. With EIP-1559 in place, tx fees may ultimately be used to buyback-and-burn STAKE.
Block size will also be increased - to 34M with this upgrade. This will increase per-block capacity for transactions and balance the BASEFEE implementation.

How EIP-1559 will impact xDai Validators

STAKE rewards for validators will not be influenced by this transition, however transaction fee rewards (in xDai) will be impacted, as the base fee will be burned by the protocol. Validators will still receive xDai for any priority fees (tips) set by users to prioritize tx inclusion. ‌
Currently, xDai validators receive all xDai transaction fees in addition to STAKE rewards. STAKE was designed as the primary incentive for validators (see the whitepaper for more info), and these rewards will remain the same for validators and delegators within a pool. The objective of the STAKE buyback-and-burn mechanism is to reduce the supply of STAKE, leading to increased value for validators, delegators, and all xDai STAKE users.
For more info about EIP-1559 on Ethereum and how it works, see the list of EIP-1559 resources compiled by Tim Beiko.
Last modified 2mo ago