Summary
Ethereum’s EIP-1559 fee market uses a single base fee that adjusts based on block utilization. Two active proposals extend this: EIP-8037 adds separate pricing for state creation vs. burst (compute) resources, and a minimum base fee floor proposal addresses the near-zero fee collapse expected after Fusaka-era blob scaling reduces congestion pressure. Empirical data (Jan 2025–Jan 2026) shows aggregate demand is highly inelastic (ε ≈ 0.175) while state demand is moderately elastic (εs ≈ 0.3–0.6).
EIP-1559 Fundamentals
The current single-dimension fee market:
- Block target: 50% of max gas (e.g., 30M target in a 60M max block)
- Base fee adjustment: ±12.5% per block depending on whether the previous block was above/below target
- Priority fee: tip to the block proposer on top of base fee
- Base fee is burned (deflationary pressure)
Problem: All gas is treated equally. A heavy SSTORE (state-creating) operation competes for the same fee space as a lightweight computation. This distorts incentives and makes it hard to price the two resource types separately.
EIP-8037: Multidimensional Fee Market
EIP-8037 introduces separate pricing for two resource dimensions:
- State gas (S): gas for creating or expanding persistent state (SSTORE, account creation, contract deployment)
- Burst gas (B): gas for transient computation (all other operations)
Three Aggregation Functions
The key design question is how to combine S and B into a single block limit constraint:
| Function | Formula | Behavior |
|---|---|---|
| Sum | S + B ≤ L | Simple; current EIP-1559 equivalent |
| Max | max(S, B) ≤ L/2 | Symmetric constraint; reduces burst throughput |
| Burst | S ≤ L/2 and B ≤ L | Caps state; allows full burst capacity |
Analysis conclusion: Burst maximizes throughput — up to 8x block capacity for burst-heavy workloads — while keeping state creation bounded. It is the recommended aggregation function.
Repricing Multiplier
When resources are repriced separately, a multiplier m adjusts the relative price of state vs. burst. Setting m=2 (state costs 2× what burst costs) can be used to discourage state bloat without reducing throughput.
Empirical Price Elasticities (2026)
Data from January 2025–January 2026, including three gas limit increases (30M→36M→45M→60M):
Key Results
| Resource | Elasticity | Interpretation |
|---|---|---|
| Aggregate demand (εagg) | ~0.175 (event-based) | Highly inelastic; demand fills capacity |
| State share (η) | ~0.43 (long-run) | Users substitute between state and burst based on price |
| State (εs) | ~0.3–0.6 | Moderately elastic |
| Burst (εb) | ~0.0–0.2 | Nearly inelastic |
Critical finding: State and burst are strong substitutes (correlation ≈ -0.99). When capacity increases, demand expands to fill it. This is the capacity-constrained demand model, not independent demand.
Implication for EIP-8037: Setting a higher price for state (m > 1) will cause users to substitute away from state creation toward burst, with η ≈ 0.43 governing the substitution rate. Burst demand barely responds to price changes.
Recovery Formulas
From the estimated model parameters:
εs = εagg + (1 - q₀) × η ≈ 0.51
εb = εagg - q₀ × η ≈ 0.08
where q₀ ≈ 0.23 (baseline state share of total gas).
Minimum Base Fee Floor Proposal
Problem: Post-Fusaka blob scaling reduces blob fees to near zero. The EIP-1559 mechanism then adjusts the base fee downward as well. Projections show a potential 96.5% fee revenue collapse once blob capacity is fully expanded and blob fees absorb most demand.
Proposal: Add a hard floor: base_fee_t = max(b_min, f(base_fee_{t-1}, gas_t))
- b_min = 1 gwei is the proposed minimum
- Without the floor: base fees collapse toward zero when blocks are consistently under-full
- With the floor: fee revenue remains positive even in low-congestion environments
- Benefit: protects validator revenue and burn rate; prevents deflationary model from breaking
Tension: A hard floor means EIP-1559’s smooth adjustment can’t undercut it — it is a price floor, not a dynamic equilibrium. This distorts the fee market when demand is genuinely low.
Priority Fee Anomaly
From the MetaMask priority fee analysis (Mar 2026):
- MetaMask sets a standard priority fee of 2 gwei — approximately 20× higher than needed in uncongested conditions
- Correlation between MetaMask user priority fees and actual congestion: -0.0009 (essentially zero)
- Users who delegate fee setting to wallets significantly overpay during normal conditions
- This represents a $100M+ annual wealth transfer from users to validators
Implication: Priority fee standardization in wallets is a significant user experience and welfare issue, distinct from the base fee mechanism.
Latency and Fee Revenue
From the APR/latency study:
- A 50–150ms reduction in block propagation latency → 0.66–1.97% APR uplift for validators
- Mechanism: faster blocks → less missed attestations → better MEV bid capture
- Builders in regions with lower latency earn disproportionately from timing advantages
Open Questions
- Which aggregation function (Sum, Max, or Burst) should EIP-8037 adopt?
- Should the state/burst price ratio be protocol-determined or market-determined?
- Should the minimum base fee floor be 1 gwei or some other value?
- How does EIP-8037 interact with the upcoming gas limit increases and parallel execution?
Related Pages
- Exclusive Order Flow and the Builder Flywheel — How MEV interacts with fee revenue
- Latency and Validator Revenue — Latency’s impact on validator APR
- MEV Auction Design: Open vs. Sealed, Timeboost, and Kairos — MEV auction design and fee extraction
- Ethereum Protocol Roadmap 2026 — Fusaka blob scaling context
Key Sources
- Analysis of Aggregation Functions for EIP-8037 (2026) — Sum/Max/Burst comparison; 8x throughput claim
- Empirical Analysis of Price Elasticities (Feb 2026) — εagg, εs, εb; substitution pattern; capacity-constrained model
- Effects of Latency Reduction on Staking Revenue (2026) — APR uplift from latency reduction