Singapore’s QCP Capital Predicts Market Volatility from EIP-1559 Upgrade

EIP-1559 adds a form of ‘rent control’ for Ethereum gas fees, and lessons the control miners have as network stakeholders

article-image

Blockworks exclusive art by Axel Rangel

share

key takeaways

  • EIP-1559 will send gas fees to the network as a token burn, instead of to the miners
  • This would solve one of the biggest pain points with Ethereum, the gas fees, but the majority of miners oppose it

One of the most significant updates to the Ethereum codebase, EIP-1559, is scheduled to be implemented in the coming days and while there’s a growing consensus that this is ‘bullish’ for the value of ether, Singapore-based QCP capital cautions that this might cause some short-term market volatility. 

“With EIP-1559, users can expect lower gas fee volatility due to a restructuring of the transaction process. Moving forward, gas fees will be quoted by the protocol as a fixed price, with a base fee as a foundation,” QCP wrote in a note published on their telegram channel. “Of more interest might be the introduction of a fee-burning mechanism, where the aforementioned base fees are taken aside and burnt. This has created a bullish narrative on the street for ETH becoming more ‘bitcoin-like’ due to a curtailing of ETH supply.”

What is EIP-1559?

EIP-1559 is a set of adjustments to the codebase of Ethereum that would fix the protocol’s biggest pain point: gas fees. These are the fees, currently paid to the miners, which act as server-like nodes, that allow for transactions to flow through the network. This in itself is a $1 billion industry, according to reports

Miners say that these fees are necessary to support their overhead, as it costs a significant amount to run these nodes at scale. However, network users complain that the high gas fees — driven by the demand from DeFi — makes it difficult to use for the casual trader. 

With EIP-1559, there would be a form of ‘rent control’ on fees, where the fee is set algorithmically and is no longer sent to the miners but rather to the network itself and is “burned”. This burning process destroys the token, creating a deflationary effect to preserve the token’s value. 

QCP says the introduction of this mechanism will cause greater volatility as they believe the total supply over time now becomes impossible to determine due to the base fee changing in tandem with network congestion. 

Currently, BitMEX’s measure of seven-day volatility with the price of ether is stable, down 1% on day. 

Ether is trading at $2,100, down 5% on-day, but up 14% on-week, according to CoinGecko. 

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member