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🍊 structuring blockspace derivatives by julian ma

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MEV_on_Ethereum/eip-1559.md
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- The incorporation of EIP-1559 in the London hardfork brought a major restructuring of the Ethereum fee mechanism, aiming to allow for easier
fee estimation by users and consolidate ETH as the base currency of the network by burning part of the transaction fees.
- Under the new fee mechanism, instead of choosing a gas price for their transactions, users set a "priority fee" for miners to incentivize inclusion,
alongside a "max fee", stating the absolute maximum price that they are willing to pay. The protocol now sets a per-block "basefee", computed
programmatically from the amount of gas used in the block immediately before, in a negative feedback loop meant for block sizes to stabilize
around a target size $s_0$ (initially equal to the maximum current block size).
- EIP-1559 changed this fee market. Users now pay a fee consisting of a base fee, which is burned, and a tip, that goes to the block builder.
The maximum block size doubled to 30 million gas units, however, the target block size is half of that. If there are few users willing to pay the base fee and the block size is below the target, the base fee decreases. Similarly, if the block size is above the target, the base fee increases.
- Valid transactions pay a gas price equal to the basefee plus the
prioirity fee (only up to the max fee needed in case of sudden basefee increases). The prioirity fee goes to the miner, and, crucially,
the basefee is burnt.
- In other owords, under the new fee mechanism, instead of choosing a gas price for their transactions, users set a "priority fee" for miners to incentivize inclusion, alongside a "max fee", stating the absolute maximum price that they are willing to pay. The protocol now sets a per-block "basefee", computed programmatically from the amount of gas used in the block immediately before, in a negative feedback loop meant for block sizes to stabilize around a target size $s_0$ (initially equal to the maximum current block size).
- Implications for MEV-related infrastructure: eliminate the possibility of zero-Gwei transactions, which are presently used for front-running
protection in some DEXes like MistX, where miner fees are taken directly from the transferred tokens.
- Valid transactions pay a gas price equal to the basefee plus the prioirity fee (only up to the max fee needed in case of sudden basefee increases). The prioirity fee goes to the miner, and, crucially, the basefee is burnt.
- Implications for MEV-related infrastructure: eliminate the possibility of zero-Gwei transactions, which are presently used for frontrunning
protection in some DEXes, where miner fees are taken directly from the transferred tokens.
<br>
### resources
- [structuring blockspace derivatives by julian ma](https://mirror.xyz/0x03c29504CEcCa30B93FF5774183a1358D41fbeB1/WKa3GFC03uY34d2MufTyD0c595xVRUEZi9RNG-dHNKs)