The DefiDollar Newsletter #001
Bringing hot takes from DeFi and crypto along with updates from DefiDollar Finance
A big step for Ethereum
It’s been slightly over two weeks since EIP (Ethereum Improvement Protocol) 1559, a part of the “London Fork”, went into effect.
It has been hailed as one of the most anticipated changes in Ethereum’s extremely dynamic and ever changing form. Millions of tweets have proclaimed the coming of a new age.
While the dust settles let’s try to understand what exactly is EIP 1559.
A major issue that currently exists plagues the Ethereum ecosystem is the high gas fees. It makes low volume transactions infeasible, deters newbies from experimenting, and prices out a majority of the populace from participating in Defi.
EIP 1559 doesn’t lower the gas fees, but it makes the bidding process for transaction fees much more efficient. It replaces the earlier first-price auction with a fixed-price sale. This means that users don’t have to make a guess about how much gas fees would be ideal, as the system would explicitly specify a base fee.
The earlier system of gas prices being set arbitrarily and being determined by the users is now gone. Now you need to pay the specified base fee for your transaction to go through. The base fee is adjusted according to a formula that takes into account the size of the previous block and the network activity.
For users who wish to prioritize their transactions, they can still tip the miner.
Read the detailed proposal here: https://eips.ethereum.org/EIPS/eip-1559
Burn, baby, burn
The base fee for every transaction will be burned rather than passed onto the miner. This means that it is removed from the circulating supply and ETH gets scarcer. As more transactions take place, more ETH will be burned, and it shall continue to get removed from the supply pool.
Wait, if Eth gets burned, the prices will go up, so how does gas price come down?
Correct, it doesn’t come down, not with this update in any case. In fact, as we have observed, gas prices have actually gone up over the past week in $ terms. However, the average wait times and the average gas prices have come down, since the users do not have to make a bid.
You can track the amount of Eth being burned here: https://watchtheburn.com/
For users who used to set their gas prices low, the wait times come down as they no longer have to wait and hope that their transaction gets picked up. The base fee for the current block is clearly specified.
For users who used to set their gas prices high, they can avoid overpaying as the fees are pegged to a base fee. They only need to include whatever tip amount they wish above that and can pay accordingly.
This is also good news for investors, as this update introduces a deflationary counter force within the system, where earlier there was none.
DefiDollar is a Multi-Chain DeFi Protocol Lab. We currently have 3 products live — DUSD, ibBTC, and Opeth.
You can learn more about them here.
This past month, we launched a revamped staking system, upgraded our fee sharing mechanism and launched a brand new Website.The DFD v2 staking Vault will now earn fees generated via ibBTC . Migrate to the new vault here.
