The Ethereum upgrade that introduced a partial network fee burning mechanism in August last year is currently making headlines again. Ethereum sidechain network Polygon is in the news today after it incorporated the same update (EIP-1559) within its ecosystem. It goes live on Jan. 18, at 3 a.m. UTC.
Polygon launched EIP-1559 to initiate the real-time burning of MATIC tokens. It goes live on Jan. 18, at 3 a.m. UTC. The official blog post read,
“The much-anticipated implementation of Ethereum Improvement Proposal 1559 is coming to the Polygon blockchain, bringing with it burning of the native MATIC token and better fee visibility.”
The update was activated at block height 23850000. It replaces Polygon’s previous fee system based on ‘first-price auction.’ The upgrade has now launched on the layer-two scaling network to improve “fee visibility”. This will include a discrete base fee for transactions in the next block. As well as a priority fee to speed up processing is included here.
As per the post, the burning is a two-step affair that starts on the Polygon network and completes on the Ethereum network.
“The Polygon team has created a public interface where users can monitor and become part of the burning process.”
Here’s a glimpse of the page after the aforementioned upgrade went live.
As gas prices are determined by supply and demand, EIP-1559 changes will not lower the fees paid for transactions. However, it will allow users to better estimate costs since the base fee is the minimum price for inclusion in the next block. This will result in fewer users overpaying.
Implications of EIP-1559 Changes on all of Polygon’s stakeholders:
Polygon’s core development team is very excited to bring these improvements to everyone in the ecosystem. According to Polygon blog site, far-reaching implications noted are:
1. Token Holders
Similar to Ethereum experience, EIP-1559 may also have a deflationary effect on MATIC, its native token. Polygon’s MATIC has a fixed supply of 10 billion, so any reduction in the number of available tokens will have a deflationary effect. As per analysis, EIP-1559 is estimated to burn 0.27% of the total MATIC supply in a year.
2. DApp Users and Developers
Users of decentralized apps (dApps) on Polygon, which already enjoy some of the lowest fees in the industry, will benefit from more predictable gas prices. The downsides are fewer MATIC tokens available because of the burn and a gas fee curve more similar to that of Ethereum. Developers will receive a boost by having all of their Ethereum tooling work seamlessly and face minimal adverse effects.
3. Validators and Delegators
Deflationary pressure will benefit both validators and delegators, because their rewards for processing transactions are denominated in MATIC. Because the base fee increases automatically if the block is full, the changes will result in fewer spam transactions and lead to less network congestion. Validators, who now receive the total amount of the fees, will be getting only the priority fee in the future.
What about the price?
Well, the native token, MATIC didn’t quite respond on a positive note. According to CoinMarketCap, the token was bleeding. At press time, MATIC was trading at $2.20, with a correction of 9% in 24 hours.