Burns So Good: MATIC is Deflationary
Polygon (MATIC) is introducing their version of the Ethereum Hardfork (EIP-1559), which makes pricing more predictable and causes MATIC to become deflationary by burning tokens.
On January 18th, Polygon (MATIC) rolled out their implementation of Ethereum’s EIP-1559 “London Hardfork.” An EIP is an Ethereum Improvement Proposal—essentially a code upgrade Ethereum, usually via a fork of the blockchain. EIP-1559 did a lot of nuanced changes, such as removing auction based fees in favor of fixed rate fees, and splitting up fees to be a base fee with a priority fee to speed up processing. This upgrade doesn’t change the amount paid in fees, but here’s why you should care:
- Fees are a lot more predictable
- Tokens are getting burned
In a post EIP-1559 world, there are two types of fees: the base fee and the speed priority fee. The base fee is calculated via supply and demand of block space, and is pre-determined when someone puts in a transaction. This means fees on transactions are a lot more predictable because the fee rate is already determined at the time of execution.
Feel the Burn
When the Ethereum token burning was implemented, people got really excited. Sites like Watch the Burn popped up to track how much has been burned, and the burn count went up fast—so far it’s just shy of $4B. Polygon followed suit and put out their own tracker, which so far has clocked nearly 400k MATIC burned or “Burn in Progress.” That’s equivalent to $600k in five days!
MATIC has a fixed token supply of 10 billion, so any amount of burn on MATIC makes the asset deflationary. The Polygon team believes roughly 0.27% of the total MATIC supply will burn each year.
In theory, an asset with high demand and progressively lower supply should result in price appreciation—an outcome that all investors, validators, and delegators on the Polygon network are hoping for.