The Ethereum upgrade that introduced a burning mechanism on the Ethereum blockchain in August last year has launched on the layer-two scaling network Polygon.
Ethereum’s EIP-1559 upgrade is part of the London hard fork that got installed last summer and it has been a success in terms of gas price predictability and network fee burning. The upgrade has now launched on the layer-two scaling network, Polygon in an effort to improve “fee visibility”.
The Polygon team announced the upgrade yesterday, following its successful deployment on the Mumbai testnet. The EIP-1559 upgrade introduces the same fee-burning mechanism to Polygon resulting in the destruction of MATIC tokens. It also removes the first-price auction method for calculating network fees which leads to better cost estimations but goes not reduce gas prices.
The EIP-1559 upgrade was first introduced in August 2020 as a step towards moving from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS). The new upgrade brought about a significant overhaul of the network’s gas (transaction) fee and other parameters such as gas fee refunds.
The upgrade also brought about a burning mechanism to the Ethereum network in which each transaction on Ethereum will involve burning the base fee, which automatically decreases the Ether (ETH) circulating supply, bringing in deflationary functionalities to the network like Binance Smart Chain’s BNB token.
Ethereum co-founder and ConsenSys founder, Joseph Lubin described the London upgrade as a part of a journey toward making Ether become “ultrasound money”.
What you should know
The Polygon team stated, “The burning is a two-step affair that starts on the Polygon network and completes on the Ethereum network.” The team stated that, just like Ethereum, the supply of MATIC is likely to become deflationary with 0.27% of the total supply being burnt every year according to estimations. There is a fixed supply of 10 billion MATIC tokens with 6.8 billion currently in circulation.
The team added, “Deflationary pressure will benefit both validators and delegators because their rewards for processing transactions are denominated in MATIC,” before stating that the upgrade would also reduce spam and network congestion.
Polygon has suffered from its own gas crisis recently, despite being a layer-two network. Earlier this month, Polygon gas fees skyrocketed according to Dune Analytics resulting in some validators failing to submit blocks. The surge in demand was due to a DeFi yield farming game called Sunflower Land which rewarded early adopters before the degens lost interest.
Since the upgrade went live on Ethereum six months ago, according to Ultrasound Money, a burn tracker, the upgrade has resulted in the burning of approximately $4.9 billion worth of Ether. The tracker also predicts that Ethereum issuance will become deflationary by -2.5% per year once “the merge” happens and proof-of-stake becomes the primary consensus mechanism for the network.
MATIC currently trades $2.15, down 10.73% as of the time of this writing.