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Overview

EIP-1559 revolutionizes transaction fee mechanics by replacing the single gas price auction model with a dual-fee structure. This creates more predictable fees and improved network efficiency for EVM-compatible chains.

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Core Concepts

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Dual-Fee Structure

Before EIP-1559, fees were simple: 
fee = gasPrice * gasLimit
With EIP-1559, fees have two components: 
fee = (baseFee + priorityTip) * gasLimit
where:
  • baseFee: Protocol-determined minimum price per gas unit
  • priorityTip: Optional fee for transaction prioritization
The Cosmos SDK uses different terminology than Ethereum. What Ethereum calls gasLimit is gasWanted in Cosmos. You’ll encounter both terms in the Cosmos EVM as it bridges Ethereum and Cosmos SDK concepts.

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Base Fee Mechanism

The base fee is the minimum price per unit of gas required for transaction inclusion. It automatically adjusts each block based on network utilization.

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Adjustment Formula

NewBaseFee = BaseFee × (1 + (|GasUsed - GasTarget| / GasTarget / Denominator))
The adjustment direction depends on block utilization:
  • Increases when gasUsed > gasTarget (congested)
  • Decreases when gasUsed < gasTarget (underutilized)
  • Remains stable when gasUsed == gasTarget (optimal)

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Example Calculation

With standard Ethereum parameters:
  • Current base fee: 1000 units
  • Block capacity: 10M gas
  • Target (50%): 5M gas
  • Actual usage: 8M gas (80% full)
  • Denominator: 8
Adjustment = (8M - 5M) / 5M / 8 = 0.075 (7.5% increase)
New base fee = 1000 × 1.075 = 1075 units

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Target Utilization

The target utilization determines the optimal block fullness: 
Target Gas = MaxBlockGas / ElasticityMultiplier
Target Utilization % = 100 / ElasticityMultiplier
Common configurations:
  • ElasticityMultiplier = 2: 50% target (Ethereum standard)
  • ElasticityMultiplier = 4: 25% target (aggressive pricing)
  • ElasticityMultiplier = 1: 100% target (maximum throughput)

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Priority Tips and MEV

The max_priority_fee_per_gas (tip) serves as an incentive for validators to include transactions faster. However, in Cosmos SDK implementations:
  • Transaction prioritization is limited compared to Ethereum
  • Tips may have minimal effect on inclusion order
  • MEV opportunities are generally reduced

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Effective Gas Price

For EIP-1559 transactions, users specify two limits:
  • maxFeePerGas: Maximum total they’re willing to pay
  • maxPriorityFeePerGas: Maximum tip for validators
The effective price becomes: 
effectiveGasPrice = min(baseFee + maxPriorityFeePerGas, maxFeePerGas)
This ensures users never pay more than their specified maximum while allowing for priority fees when network conditions permit.

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Fee Calculation Examples

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Low Activity Period

  • Base fee: 100 gwei
  • User sets: maxFeePerGas = 200 gwei, maxPriorityFeePerGas = 2 gwei
  • Effective price: 100 + 2 = 102 gwei
  • User pays: 102 gwei (well below their 200 gwei max)

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High Congestion

  • Base fee: 180 gwei
  • User sets: maxFeePerGas = 200 gwei, maxPriorityFeePerGas = 30 gwei
  • Effective price: min(180 + 30, 200) = 200 gwei
  • User pays: 200 gwei (capped at their maximum)

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Minimum Gas Prices

The fee market enforces multiple price floors:

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Local vs. Global Minimums

  1. Local minimum: Set by individual validators in node configuration
  2. Global minimum: Set as the MinGasPrice parameter via governance
  3. Base fee: Current protocol-calculated minimum
The effective minimum is always the highest of these three values.

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Benefits of EIP-1559

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For Users

  • Predictable fees: Base fee is known before submitting
  • Better UX: Wallets can reliably estimate costs
  • Fair pricing: All users in a block pay similar rates
  • Protection: MaxFeePerGas prevents overpayment

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For Networks

  • Automatic adjustment: No manual intervention needed
  • Spam resistance: Dynamic fees deter attacks
  • Optimal utilization: Targets efficient block usage
  • Economic stability: Predictable fee revenue

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For Developers

  • Simplified estimation: Base fee is protocol-provided
  • Better tools: Standard APIs for fee data
  • Consistent behavior: Across EVM-compatible chains

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Common Misconceptions

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”Tips Always Speed Up Transactions”

In Cosmos SDK chains, transaction ordering is often FIFO within the mempool, making tips less effective than on Ethereum mainnet.

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”Base Fee Always Burns”

While Ethereum burns the base fee, Cosmos EVM chains may distribute it differently based on their economic model.

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”EIP-1559 Eliminates Fee Spikes”

It smooths volatility but can’t prevent spikes during extreme congestion. The adjustment rate is intentionally limited.

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Further Reading