How Does EIP-1559 Change the Fee Market on Ethereum?
EIP-1559 introduced a mandatory base fee that is burned, making transaction costs more predictable. It also includes an optional 'priority fee' (or 'tip') that goes to the validator.
This change aims to reduce fee volatility and improve user experience by automating fee estimation. The burning of the base fee also introduces a deflationary mechanism.
Glossar
Fee Market
Mechanism ⎊ A fee market describes the dynamic system within a blockchain network where users bid against each other to have their transactions included in the next block.
Fee Volatility
Dispersion ⎊ Fee volatility within cryptocurrency derivatives reflects the dynamic range of transaction costs associated with executing trades, notably impacting options pricing and hedging strategies.
User Experience
Interface ⎊ The user experience within cryptocurrency derivatives, options trading, and financial derivatives necessitates a meticulously designed interface, prioritizing clarity and efficiency for sophisticated users.
Fee Predictability
Variance ⎊ Fee predictability, within cryptocurrency derivatives, concerns the quantifiable dispersion of expected transaction costs relative to realized costs, impacting trading strategy profitability.
Deflationary Mechanism
Impact ⎊ A deflationary mechanism within cryptocurrency, options, and derivatives contexts fundamentally alters asset supply dynamics, often through token burns, buybacks, or protocol-embedded scarcity features.
Transaction Costs
Expense ⎊ Transaction costs represent the total expenses incurred when executing a trade or interacting with a financial protocol on a blockchain.