Wouldn’t adding MATIC to liquidity pool just drive the price of MATIC down, as it increases the MATIC portion but not the other asset in the pool?
Also, as far as I can tell, I’m not sure you can argue this is a good way of permanently locking the token as it is on the mercy of the governance process at the exchange?
While discussing the fee cost structure is important, let’s do it with a long term mindset. I feel a lot of people say “burn the token” simply because they want to profit “short term”, i.e., purely based on self interest.
I don’t think you can build a long standing system that others want to use and build on top of if core fundamentals are driven by these short term motives.
I find it flawed to try to implement EIP-1559 without also doing something with the supply side.
I feel it’s difficult to have these conversations when a lot of the discussion in crypto land is “deflation good, inflation bad” without much more nuance added, but if we are to discuss EIP-1559, discussing the supply side should also be on the table.
By adding liquidity I mean as a 50/50 split; eg if 100 matic is generated from basefee costs over x time (assuming there’s a timed call on the contract as opposed to it happening on every executed tx) 50 matic is used to by USDC, and the USDC+MATIC is pooled.
I’m not sure what you mean about hte mercy of the governance process; if LP tokens from the a dex are burned, the liquidity position represented by said tokens can’t be removed, and if the LP tokens were locked in a contract, it would achieve the same effect of removing the option to withdraw the supplied liquidity.
I agree with your further comment that most of the responses seem solely focused on “number go up” with no consideration of the potential long-term effects of a constant (albeit small) deflation of total suppoly; hence my recommendation to instead supply liquidity for $MATIC, but remove the ability to take the supplied liquidity back out.
Right, got you on the first point there, about balancing the two sides.
On the point about being at the mercy of the governance process for the exchange where liquidity is provided: The LP tokens that are burnt/forever locked, still exist, just become inaccessible. But, they are only inaccessible till the underlying liquidity contracts are upgraded and these are “unlocked by an admin user.”
That’s what I mean by “being at the mercy” of a third party. I guess you can argue this isn’t a problem due to maybe lack of upgradability or similar, but these are risks that need evaluating in that case.
It feels complex to me, certainly more so than just burning the tokens. But yeah, as I’ve posted elsewhere, I don’t think just burning without thinking about the supply side is sensible…
I’m in favor of burning the token for the sake of consistency with Ethereum and token appreciation.
As for the people in favor of not burning, can someone give single explanation how burning and token value increase will have negative effects on network growth? If the argument is that more expensive Matic means more expensive transactions, let me remind you that price recently increased 1000% despite no burning involved yet the network is still growing and users are flocking.
Its debatable if EIP-1559 is even needed to begin with.
Its not about price, Matic has a fixed supply unlike ETH; this means the coin supply would slowly cause a big disadvantage for the network as the biggest holders, such as Matic themselves would slowly have a disproportional amount of the network supply.
Can see a need maybe for keeping RPCs in sync, to avoid incompatibility, so that tools like metamask and similar can give proper fee estimates, etc…
But that’s purely protocol/RPC technical… does not imply base fee needs burning or anything else going on.
Of course, it doesn’t mean validator collusion, keeping fees artificially high, can’t become a problem worth fixing. But then it would need a holistic approach, as far as I’m concerned.
Why You want to change something in Matic network if these network is good as is it. In nearly future these network can be number 1.
Right, right, I hadn’t thought about liquidity protocols upgrading. I’ve not intention to seem argumentative, or to imply your points aren’t valid, I just thought it would be good to offer another, potentially more beneficial solution (were it necessary/mandatory to implement 1559; in the case its simply an option, I really see no reason for it at present)
For sure, good to discuss options
I’m running a (smaller) validator and don’t want to see the MEV, chain reorgs and spamming that we see destabilizing Ethereum, which EIP-1559 is designed to help minimize. So I support implementing this EIP.
Pragmatically, we probably want to implement this just for the sake of compatibility with tooling, wallets, etc.
As to what should be done with burned basefee, I support the “soft burn” (~50% of tokens) going to DAO only if there is some kind of quadratic voting mechanism to boost the voice of small MATIC holders and community AND if the percentage burnt parameter is variable and can be voted on as well (as part of the DAO’s governance).
If we EVER need more tokens in the future (many years ahead), we can alway vote for a new protocol. For now, let’s burn the tokens to increase the value of the tokens.
EIP1559 will actually accelerate MEV because stakers will earn less on each block which will incentivize them to earn fees elsewhere (by reordering transactions).
Can you elaborate on what incompatibilities necessitate an upgrade?
[Edited] Vitalik has argued that EIP-1559 is fee market reform (link) that will dis-incentivize validator transaction reordering (just one form of MEV) by reducing the transaction fee revenue and increasing block reward revenue. He cites this paper: https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf
As far as (in)compatibilities, reasoning is: the more Polygon stays in sync with native Eth protocol, the better chance it has of being included as a default network option in Ethereum-based wallets that may not want or have the bandwidth to fork their code to accomodate diff fee markets.
@Cypherpunk5 Edited my previous comment above with citations from Vitalik & Princeton research paper
I would say that burning the tokens is a short sighted move. Polygon primarily exists as a utility token with a fixed supply.
The economics of it just don’t make sense. Burning the tokens right away would facilitate an increase in the individual token price due to scarcity in the short term, true.
But eventually (at some point in the future, however distant) you would get to the point where you need to reallocate new MATIC tokens into the supply in order to make up for the burned tokens.
If the MATIC DAO or treasury at that point can just will 100 Billion or however many more tokens into existence into the supply, as they will have to, then what does that imply for the value of the currently held token supply?
IMO if a commodity can just be printed willy nilly (cough cough US Fed) then at some point people are going to cotton onto the fact that there might not actually be any inherent value in it.
And finally, the smart contract will be a temporary escrow for those tokens while the community decides what to do with it! Its not even like burning them is off the table at that point.
But ultimately yes I believe using the accumulated basefee to invest back into the network is the best long term move.
And as a community we are all enriched by making long term moves to maximize mutual gain for all actors, old and new.
I am also i favour of that.
Or have the base fee set to 0 all the time, which will support the EVM basefee opcode, but will not change tokenomics of MATIC.
A burning mechanism could be implemented to where the burning of the token set to a higher rate. Set a low-bound for the maximum of the token to burn, meaning no burning after reaching X percent of the total supply. Slowly reduce the burning until the max supply of the token reaches that percentage.
Also, the burning could be implemented as a soft burn. Those burned tokens could go to a contract and accumulate. Depending on how many accumulate, the network could use those burned tokens to continue rewarding validators on the network for longer. Maybe make it to where 50% of those accumulated tokens go to rewards every year. This would ensure that MATIC would never run out of staking rewards since taking 50% each year from a contract which is consistently accumulating tokens would never reach zero.
This would be a continuation of reduction of validator/delegator rewards that would mimic Polygon’s 5 year reward distribution plan. Except it would be never-ending.
Protocols which expect an end to rewards/emissions given to the nodes/miners who secure the network just doesn’t seem like a good idea to me. Especially using only a 5 year timeframe, praying that transaction fees reach a high enough level to be enough incentive for validators to continue securing the network.
Hey friend. Yes it’s fee market reform, but that doesn’t address MEV. The link you posted is referring to chain-reorg attacks.
MEV is a measure of the profit a miner (or validator, sequencer, etc.) can make through their ability to arbitrarily include, exclude, or re-order transactions within the blocks they produce. - Paradigm (MEV and Me)
It’s better to save these tokens and use them to fund long-term goals and further development or even use them for liquidity mining incentives rather than burn them.
Buying growth with dilution is a good deal whenever the value of the equity grows faster than the issuance rate. - Stop Burning Tokens – Buyback And Make Instead (Joel Monegro)
The risk with burning is that if the price of the token does not rise in proportion to the number of tokens burned, the overall market cap of the network will decrease. Ethereum may be mature enough to handle this, Polygon is not.
In any case, we can decide whether we want to burn the tokens or use them for network development initiatives afterwards. This option gives us multiple strategies to handle the funds as opposed to the one-way door of burning tokens.