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MEV_on_Ethereum/eip-1559.md
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@ -14,13 +14,15 @@ fee estimation by users and consolidate ETH as the base currency of the network
- 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.
- 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).
- In other words, 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).
- 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.
- eip1559 is kind of a perpetual second-price auction. The basefee floats to price out exactly enough users such that the remaining ones fill the block to capacity. Sometimes it increases (as in English auctions), when the demand is higher than the supply, and sometimes it decreases (as in Dutch auctions), when the demand is lower than the supply.
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