Transaction Fees on a Honeymoon: Ethereum's EIP-1559 One Month Later

TL;DR

This paper evaluates Ethereum's EIP-1559 fee mechanism, analyzing its short-term market behavior and proposing an AIMD-based adjustment scheme to improve stability and efficiency in transaction fee markets.

Contribution

It provides empirical analysis of EIP-1559's impact and introduces a novel variable learning rate adjustment method that outperforms the original protocol in simulations.

Findings

EIP-1559 achieves average goals but causes chaotic oscillations and slow adjustments during demand surges.

Short-term market behavior includes intense, unpredictable block size fluctuations.

A variable AIMD-based adjustment scheme improves stability and performance in simulated demand scenarios.

Abstract

Ethereum Improvement Proposal (EIP) 1559 was recently implemented to transform Ethereum's transaction fee market. EIP-1559 utilizes an algorithmic update rule with a constant learning rate to estimate a base fee. The base fee reflects prevailing network conditions and hence provides a more reliable oracle for current gas prices. Using on-chain data from the period after its launch, we evaluate the impact of EIP-1559 on the user experience and market performance. Our empirical findings suggest that although EIP-1559 achieves its goals on average, short-term behavior is marked by intense, chaotic oscillations in block sizes (as predicted by our recent theoretical dynamical system analysis [1]) and slow adjustments during periods of demand bursts (e.g., NFT drops). Both phenomena lead to unwanted inter-block variability in mining rewards. 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. Our simulations show that the latter robustly outperforms the EIP-1559 protocol under various demand scenarios. These results provide evidence that variable learning rate mechanisms may constitute a promising alternative to the default EIP-1559-based format and contribute to the ongoing discussion on the design of more efficient transaction fee markets.