Dynamics of Ethereum’s EIP-1559 Transaction Fee Mechanism
Stefanos Leonardos, Daniël Reijsbergen, Barnabé Monnot, Georgios Piliouras · Distributed Ledger Technologies Research and Practice · 2025
Transaction fee mechanisms are pivotal elements of blockchain economies, as they resolve the inherent scarcity in the number of transactions that can be added to each block. First-price auction mechanisms implemented by early blockchain protocols, however, contributed to pronounced intra-block disparities, unpredictable waiting times, high congestion, and other inefficiencies. To mitigate these effects, alternative fee market mechanism has been proposed, e.g., Ethereum’s EIP-1559. In this article, we investigate the ramifications of EIP-1559 on system performance and user experience. Although we prove that EIP-1559 exhibits chaotic behavior even under optimal conditions, we demonstrate that the influence of this chaotic behavior on the primary design objective of the fee mechanism—blocks whose long-term average size equals the target—is limited. Our theoretical bound shows that block sizes in the EIP-1559 mechanism are lower bounded by target utilization—half-full blocks—and the upper bound is capped at 6% beyond the target. These findings are confirmed by an empirical evaluation that shows that the average discrepancy has been 2.9% under Proof-of-Work and decreases to around 1% or less following Ethereum’s transition to Proof-of-Stake. However, the chaotic oscillations in block sizes and the slow adjustments during periods of demand bursts (e.g., NFT drops) result in undesirable inter-block variations in mining rewards and compromise the overall user experience. To address these issues, we propose an alternative base fee adjustment rule, characterized by a learning rate that adapts according to an additive increase, multiplicative decrease (AIMD) update scheme. Our data-driven simulations show that the latter robustly outperforms the EIP-1559 protocol across various demand scenarios.