Feb. 2022
Author: S[email protected]
According to Footprint Analytics, as of February 7, Ethereum has burned 1,778,834 ETH (worth $5.5 billion at current prices) since its London upgrade in August. Following suit, Polygon announced its mainnet upgrade on January 18 (UTC), implementing EIP-1559.
How EIP-1559 Works
EIP-1559 replaces the first-price auction fee mechanism with a base fee + priority fee model:
- Base Fee: Dynamically adjusts based on network congestion and is burned, making gas fees more predictable.
- Priority Fee: Paid directly to validators.
On Polygon, burning occurs in two phases: initiated when pending MATIC exceeds 25,000, and completed on Ethereum. So far, 540,000 MATIC have been burned.
Why Polygon Needed This Upgrade
As an Ethereum sidechain, Polygon aims to solve scalability issues like high fees and low TPS. However, in early January, Polygon faced a gas fee crisis—spiking to 763 Gwei due to NFT game Sunflower Farmers, which consumed 40% of network gas.
Vitalik Buterin cited research (from Peking/Duke University) confirming EIP-1559 improves user experience, reducing median wait times post-London upgrade. Polygon hopes to replicate these benefits.
Expected Impacts
The upgrade aims to benefit:
- Token Holders: Fixed MATIC supply + burning may induce deflation (~0.27% annual burn rate).
- Users: More predictable gas fees while retaining low costs vs. Ethereum.
- Validators: Earnings shift to priority fees but gain from MATIC’s deflationary pressure.
Post-Upgrade Data Analysis
1. Average Gas Prices
EIP-1559 doesn’t directly lower fees but stabilizes them. Post-upgrade, Polygon’s average gas price hovered above 200 Gwei, slightly higher than pre-upgrade levels, before easing in late January.
2. Network Utilization (Gas Used/Gas Limit)
Ethereum’s network usage dropped from ~97% to 51% post-London upgrade, with minimal fluctuations. Polygon mirrored this trend, falling from 60–90% to below 50.7%, enhancing stability.
3. MATIC Price Trends
Unlike ETH’s post-upgrade rally, MATIC’s price declined—correlating more with Bitcoin’s downturn (now below $40K) amid macro factors:
- EU’s proposed PoW mining ban.
- Russia’s central bank advocating crypto bans.
- Federal Reserve rate hikes.
Conclusion
Polygon, once the #3 chain by TVL, has slipped to #8 since August due to scaling challenges. While MATIC’s price remains pressured by broader market trends, the EIP-1559 upgrade could reignite its competitive edge by improving user experience and tokenomics.
If burning MATIC continues, it may yet "rise from the ashes."
FAQs
1. How does EIP-1559 reduce gas fees?
It doesn’t directly lower fees but stabilizes them via dynamic base fees and burns, reducing volatility.
2. Why did MATIC’s price drop post-upgrade?
Macro factors (e.g., Bitcoin’s slump, regulatory pressures) outweighed upgrade optimism.
3. How much MATIC has been burned so far?
540,000 MATIC (as of February 2022).
4. Will Polygon’s upgrade affect Ethereum?
No—burning starts on Polygon but is finalized on Ethereum.
5. What’s the long-term impact of MATIC burning?
A fixed supply + burning could create deflationary pressure, potentially boosting MATIC’s value.