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Philip Lazos: Blockchain Transaction Fees and the Economics of Token Burning

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Blockchain systems come with the promise of being inclusive for a variety of decentralized applications (DApps) that can serve different purposes and have different urgency requirements. Despite this, the transaction fee mechanisms currently deployed in popular platforms manage congestion by offering increasing prices, in favour of those clients who value immediate service during periods of congestion. To address this issue, we introduce a model that captures the traffic diversity of blockchain systems and a tiered pricing mechanism that is capable of implementing more inclusive transaction policies. In addition, we present a transaction control mechanism without dynamic fees, that can provide predictable throughput over a longer period of time to users that have paid in advance. Finally, we examine the implication of these designs to the greater token economy, and show how the redistribution (or burning) of transaction fees affects on-chain activity in the presence of congestion and demand shocks.

Philip Lazos is a research fellow at Input Output Global (IOG), working on all things related to the economics and incentives of blockchains (such as transaction processing, governance, tokenomics and stablecoins). Before that, he was a postdoc at the Sapienza University of Rome and the University of Oxford. Philip has a master’s degree in Electrical Engineering and Computer Science from the National Technical University of Athens and DPhil in Computer Science from the University of Oxford.

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