Introduction
I propose that we increase on-chain transaction (TX) fees.
I see two general reasons for doing this, which I’ll address first, in Part 1, before getting into the particulars in Part 2. In sum, a negligible increase in TX fees will (A) substantially decrease the supply—if, in a subsequent proposal, we establish an automatic on-chain burn—and it will, more importantly, (B) substantially increase the security of XDC.
Finally, in Part 3, I’ll mention an additional consideration, about the (currently, centralized) way in which masternodes are rewarded, which, I think, should be taken into account in all of this.
Part 1
(A)
The XDC Network is currently micro-inflationary. That is, the network mints about 88,237,728 XDC per year in order to reward masternodes. It’s important to understand that this relatively small amount of minting is crucial to keep the network secure. A permissionless blockchain depends for its safety on properly incentivized network participants. In this case, it’s imperative that the masternodes entrusted with validating the network be incentivized to do so—meaning, rewarded with XDC—and it’s equally imperative that they be rewarded with XDC automatically, in a decentralized way, by the network itself. Without decentralized, automated minting, the masternodes would be dependent on someone or something else for their income, which would put the network at risk. In short, if anything were to happen to the entity subsidizing the masternodes, or if that entity were to engage in any misbehavior, the system of incentives that keeps the network afloat would break down.
But, while minting is absolutely necessary for this reason, we can offset at least some of its inflationary effects by increasing the TX fees as well as the burn rate of XDC, which will serve to decrease XDC’s supply and maybe even, eventually, make XDC deflationary.
XDC Network users always have the option of sending XDC to the burn contract, and some dApps have been designed to do this automatically. But there is presently no automatic on-chain burn mechanism. Only about 700,000 XDC has been manually sent to the burn contract since the network went live in 2019. As compared with about 300,000,000 XDC minted, that isn’t much.
So, this is the first reason why I am proposing that we increase the TX fees: if we decide to increase TX fees, we can then move ahead with a separate proposal to add an automated burn, thus making make the XDC Network less inflationary and maybe even, eventually, deflationary.
(B)
But, as important as that is, the second reason for doing this is much, much more important than the first.
Sending a transaction on a permissionless blockchain requires users to pay a relatively small fee. These TX fees, generally speaking, serve two distinct purposes:
First, since the fees are paid in whole or in part to validators (masternodes), they serve to reward validators for good behavior.
Second, since it costs something to send a transaction, TX fees serve to deter spam, which can create network congestion, degrade the network’s performance, and even, in the worst case scenario, bring down the network entirely. Spamming can be unintentional; but it can also be intentional, as when a bad actor launches a Distributed-Denial-Of-Service (DDoS) attack.
When setting on-chain TX fees, it is therefore necessary to strike a balance between affordability and security. On the one hand, if TX fees are too high, users will be deterred from using the network, which will of course prevent widespread adoption … and that’s no good … BUT, on the other hand, if TX fees are too low, the network can be spammed to death … and that’s not good either.
To illustrate the dilemma we face, consider the case of Ethereum as compared with Solana. XDC was designed partly in order to fill the gap left by Ethereum (ETH), with its prohibitively high TX fees. But Ethereum’s high TX fees, while they deter network adoption, actually do a very good job of keeping the network safe from spamming and DDoS attacks. On the other hand, Solana (SOL) has been vulnerable to multiple high-profile network failures owing partly to the fact that it has such low TX fees: https://www.yahoo.com/video/solana-latest-ddos-attack-leads-120022342.html.
The bad news is that XDC’s TX fees are currently too low to deter spamming and DDoS attacks. A typical transaction on the XDC Network costs at a maximum about 0.0004 XDC (or about $0.000012 @ $0.03/XDC)—usually, transactions are actually much less expensive than that (around 0.000021 XDC), but we’ll err on the side of caution here and go with maximum. Since every block can carry a maximum of 4,000 transactions, it would only cost, at most, about 1.6 XDC to fill an entire block (or about $0.05). And since there are about 1,800 blocks every hour, it would only cost, at most, about $90 to jam the network for an hour, which comes to about $2,160 for an entire day. That’s not costly enough to deter malicious actors or even just innocent, overactive users from clogging the network up.
So, this is the second, and more important, reason why I am proposing that we increase the TX fees: to make the XDC Network more secure and future-proof.
Part 2
The good news is that TX fees are currently so infinitesimally low on XDC that even if we were to increase TX fees 5x or 10x or even 20x, for example, there would be little to no impact on the network’s affordability.
A 5x increase in TX fees would come to about 0.002 XDC or about $0.00006/TX.
A 10x increase would come to about 0.0048 XDC or about $0.000144/TX.
A 20x increase would come to about 0.008 XDC or about $0.00024/TX.
Needless to say, the cost would remain negligible from the point of view of the end-user. But a 5x increase would bring the cost of a DDoS attack over a 24-hour up to $10,800, a 10x increase would bring the cost up to $21,600, and a 20x increase would bring the cost up to $43,200.
In addition to this, a 5x, 10x, or even 20x increase in TX fees would allow the network to burn a more substantial amount of XDC with every TX, potentially doing more to offset the micro-inflation due to the ongoing minting.
That would mean, specifically, if there are on average 10 TXs pers second happening on chain, and if the TX fees were increased by 5x, 10x, or 20x, there would be .02 XDC (or $0.0003), 0.048 XDC (or $0.0006), or 0.08 XDC (or $0.0012) collected per second, respectively. Or, respectively, 630,720 XDC, 1,513,655 XDC, 2,522,800 XDC collected per year. If there are more or less TXs happening per second on chain, the annual amount of XDC collected would of course increase or decrease accordingly.
But the key thing here is that, since all of that XDC could be burned, yearly inflation on XDC would be cut … almost in half, for example, if there were 150 TXs happening per second and TX fees were increased by 20x.
So, in conclusion, by increasing TX fees, we can improve the security of the network. Moreover, if, in a subsequent proposal/vote, we go on to establish an automatic on-chain burn of the newly increased TX fees, we can cut down on inflation. All in all, with this increase, we will be future-proofing XDC and paving the way for additional future-proofing. The most important thing here, I think, is that we take the initiative and increase the TX fees proactively, and not wait until after the XDC Network is subjected to a DDoS attack, which is likely to happen as the Network gains more and more traction and is adopted ever more widely. Lastly, remember that the calculations above are all based on the maximum TX fee, not the average, which is orders of magnitude lower than the maximum.
Part 3
A final consideration.
Masternodes are currently subsidized by funds set aside by XinFin in an ecosystem development fund wallet. Since there is not enough on-chain minting to ensure that masternodes receive the expected 8-10% APY, rewards are manually dispensed to node operators by the tech team every month. Core masternodes are partly and standby masternodes are fully subsidized in this way. However, because the process by which masternodes are rewarded is largely manual, rather than fully automatic, the network is less secure than it could or should be. For, to repeat, if anything were to happen to the entity subsidizing the masternodes, or if that entity were to engage in any misbehavior, the system of incentives that keeps the network afloat would break down.
We should, for this reason, be working toward a fully automated and thus fully decentralized incentive-structure, one in which masternodes are not dependent on monthly payments from any entity, including even XinFin itself. Increasing the TX fees will make it possible, sometime down the road, to generate more rewards from the network and distribute them to masternodes … automatically, in a decentralized way, and not manually.
Conclusion
At the stage, I’m not proposing a specific TX fee increase. Instead, I’m proposing that we agree (or disagree) to increase the TX fee on XDC, probably anywhere between 5-20x ... for all of the abovementioned reasons.
Once we agree on that—if we do—then we can move forward with additional proposals. First, we’ll vote on exactly how much to increase the TX fees. Then, once we decide how much to increase the TX fees, we can decide whether to automatically burn some/all of the larger amount of TX fees collected, and whether (and how) to reward masternodes automatically from the increased TX fees.
Comments are, of course, welcome below.
When you’ve made up your mind, please cast your vote in the comments section: Vote = YES or NO.
Voting will begin today, Thursday, November 10, at 8 AM (EST) and end Thursday November 17 at 8 AM (EST).
Thanks to all in advance for participating in this process!
RESULTS
Thanks again for participating. The results are as follows:
Total Votes: 96
YES votes: 95
NO votes: 1
Overall Post metrics (likes, comments, views):
The wayback machine keeps failing to archive the pages. As soon as it works, I'll update the post with links to the archives pages.
Discussion (114)
Absolutely YES !
I propose we simply make the transaction fee 0.01 XDC ... that is easy to remember as it's like a penny in relation to 1 USD ... so easy for old and new community members to pass along for clarity
0.01 xdc tx fee would be a 25x increase from the current 0.0004 and so even at a future price of 1 USD per XDC, the tx fee is still just 1 cent ($0.01 USD) per tx and would raise the DDoS attack cost to over $50k even at the low current xdc price with this rising to over $1M when each xdc is worth $1 or more
I think it is currently ridiculous that a layer 2 can mint hundreds of NFTs for less than 1 xdc ... there is an economy here and an exchange of value ... XDC Network provides way more value than we are currently charging and while we don't want to be anywhere near ETH levels, it's not healthy for any economy to give services away as eventually the network becomes poorer.
In any empire, when the money (xdc) deteriorates then the vibrancy of the community goes down which then leads to weakness and someone stronger taking its place.
Let's keep this a win-win for everyone with XDC HODLERS being rewarded for providing decentralization for a great price and super fast speed without putting ourselves in a position of weakness.
Thanks Dust!!
I vote YES, with the following comments.
Part 1 A / B and Part 2:
Keeping the network secured should be paramount and I believe we should take any opportunity to keep the network secured. Increasing the tx fees is a good way to tackle the low hanging fruit. I'm leaning towards the higher side but with the capability of reducing the fees as price of XDC increasing. We don't want to become the next ETH in high transactions fees, while remaining competitive with other EVM and non-EVM chains that advertise low transactions fees. Having the ability to adjust the fees as price of XDC increasing will be appealing to anyone looking to build on XDC or use XDC as the choice of moving money for instant settlement. We also have to think about Dapps with deflationary systems that will add to the burn ratio of the total supply. We don't want to have an over-burn and cause a STRONGBLOCK issue where they burned too much of the supply and they had to reinvent another token to overcome their issues (extreme example of course but it can happen).
Part 3:
Absolutely yes. Part of decentralization is being able to utilize the smart contract feature of the network for the payouts of the nodes that support the same. Depending on an entity or person(s) for the rewards of the network brings SO many issues that can take the entire network down entirely. I believe addressing this issue should be done before addressing the tx fees increase or simultaneously if possible. The idea that Ronny proposed about NFT's to represent the nodes should be considered as this can address some of the requests that have been made in the past. The opportunity to be able to transfer a node from one party to another, whether a business or person. The NFT should represent the 10 million XDC locked on the node. I had a conversation with the CEO of a layer 2 recently that is doing something very interesting with NFT's and I think this idea should be adopted for the nodes. I can't share publicly as this is not yet public for the layer 2, but I believe it's an amazing idea and opportunity to adopt the same for the nodes supporting the network.
Thanks Sal - really great points.
Vote =YES
Please consider add Airdrops for holders from new projects
Vote = SIM
VOTE = YES
This post has two proposals. 1. Increase tx fees, 2. Introduce burning mechanism to tx fees.
Increase tx fees has two proposed benefits. A. Make DDoS attacks more expensive, B. Explore funding Masternodes with tx fees.
Introduce burning mechanism has one proposed benefit. A. Increase deflationary pressure on tokenomics.
1.A. I think it is important to recognize this as an issue and to figure out a solution to the problem. I don't know if a static tx fee is the solution here or if we need a dynamic fee that responds to tx rate per block (similar to EIP-1559: github.com/ethereum/EIPs/blob/mast...). I think that it needs to be difficult to change the tx fee, so if tx fee becomes a variable that can be set with a protocol upgrade there needs to be a high bar for justification for changing it. We also need to be cognizant of other discussions around tx fees, for example there is an active proposal to upgrade the XDC Network EVM, and this proposal discusses adopting changes related to tx fees: xdc.dev/gary/proposal-on-evm-upgra...
1.B. You are correct that the centralization (both funding and payment mechanism) of masternode reward payouts is an issue that needs to be addressed. One variable that we need to be aware of is that proposals for changes to masternode count and reward amounts are being actively proposed (xdc.dev/riteshkakkad/xdc-network-p...). I think that masternode count/type/rewards should be considered dynamic right now, and that considerations around how/if masternode rewards are subsidized has to wait until proposed changes to masternode count/type/rewards are settled.
2.A. I think that introducing a burning mechanism to tx fees is less important 1.A. and 1.B. Tokenomics is very complicated; increasing the burn will add deflationary pressure to the token supply, which may lower transaction count as existing holders are less incentivized to spend XDC whose price they expect to go up with increased burn, which may lower liquidity of XDC, which may decrease the perceived value of builders looking to select a network to build on. Or maybe not, it's almost impossible to predict (at least for me). There is also the possibility that dApps can elect to burn XDC by sending it to xdc0000000000000000000000000000000000000000, which is important because it shows that burn can't be controlled purely at the protocol level. All I'm saying is that Tokenomics is very complicated.
Given the above statements I would be in favor of moving any discussion around Burn to a different proposal. I know it is convenient to try to kill two birds with one stone, but I don't think it will be efficient.
Lastly, if this vote passes then it will require a group of people willing to champion this idea through the XIP process. I vote for two XIPs, one focused on tx fee increase mechanism and a second focused on introducing a burning mechanism to transactions.
Great, great points. Yes, the proposal was a bit unclear on this front. To be clearer, as I said in the conclusion (but not in the introduction, which I'll go ahead and edit slightly now), the current proposal and vote is ultimately only about this: do we want to increase TX fees, yes or no? How much to increase the TX fee, and how much or (even whether) to burn, depends on the yes votes winning here ... so we'll have separate proposals and votes on those issues sometime down the road, once this more fundamental question is settled by the community. Thank you Jon!
VOTE = YES !
At current value, I don't think anyone would be against the proposal because even after the 20x increase the fees in dollar value comes to around $0.00024 but what will happen when the value of XDC increases to a dollar or may be 50 cents.
Yes, great question - as I said above to Ronnie, I'd personally like to have an option to change the fee (by a vote) as market conditions change. But I'll game plan out the various scenarios in a subsequent, more technical proposal, if this one passes.
Thanks @dust
Increasing the transaction cost to keep the network secure and minimize inflation would be a great thing.
However, i'd like to see an implantation of fees exactly like hedera. Having a fixed fee denominated in USD like 0.01$ usd or 0.001 usd would be great for enterprise and just overall user awareness.
I also believe the consensus should be strong enough to help with security such as the upgrade to XDPoS 2.0 with a BFT.
It's a good idea. We'll have a subsequent proposal/vote on exactly how to structure the higher TX fees. For now, the question on the table is just: do we want to increase the fees?
Vote = YES
Dust,
There have been some great points brought on by Jon, Salomon, James and Ronald, so I don't need to hammer home the importance of network security, longevity, and decentralization. With that said, I strongly agree with Jon this should be separated into two proposals.
Moving forward with increasing tx fees will require evaluating the EVM migration with existing EIPs and propose the upgrades as an XIP. This will take a team and considerable work, but it's the right thing to do. I will volunteer my time to support you in this effort.
Vote = YES
Thank you Dust!
Before I cast a vote on yes or no.
May I ask ask the below questions and get some answers.
How does Ripple or Stellar Lumens overcome the issues of DDOS attacks?
Also what is stopping XinFin using SaaS masternodes?
The good thing of SaaS is high availabilty of the services and you can span your network across various geographical locations, without having to rely on someone keeping a node up and running, whilst trying to ensure that the machine has the latest antivirus and ensuring high availability without major downtime.
You basically take control of what the requirement, the node must meet. You can also scale your network up and down accordingly.
If you can mint more XDC to reward spun up masternodes, that also gives me the impression that more XDC can be minted and can be injected into the XDC token supply. Instead of minting more XDC, why not reward masternodes with a stable coin value, of what it costs to maintain the node, and offer a small bonus to ensure the person keeps on looking after the node?
I was under the impression that supply and demand drives prices and if you can keep on minting an unlimited amount of tokens, what will be the cost of per XDC token be in five to ten years from now?
In the future I wouldn't really want to transfer 33000 XDC tokens to settle a $1000 bill, I would prefer to see 1000 XDC to settle $1000 bill with very low transaction fees.
Good questions.
Re: XRP/XLM, the main thing is that while their TX fees are quite low, their absolute value relative to the dollar is quite high. So the cost of a DDoS/DoS attack is going to be much higher.
Re: SaaS, we've got that already - XDC nodes are spread all around the world, with many hosted by cloud computing companies.
Re: minting, please note, new XDC cannot be minted on-demand, that's impossible; a small amount of XDC is minted automatically to reward nodes every 2 seconds or so (this is typical in PoS networks for the reasons I discuss above), but nobody can flick a switch and mint XDC.
Re: rewards for nodes, the dangers of a reward program like the one you suggest are discussed in my post as well as Jon McBee's post above.
Finally, please note that the only question on the table now is whether to increase TX fees. All of these other questions are related to that question in various ways, which is why I brought them up, but we'll have further discussions and proposals and votes to hash out the specifics of any increase.
Hi Dust
Thank you for your response.
My vote is yes to increase the tx fees, only if increasing tx fees significantly reduces the amount DDOS attacks from happening on the Xinfin network.
I believe XRPL proof of consensus mechanism has network fees fluctuate with demand on the network, which is still minimal.
Yes
We need to get the Masternode payment situation fixed. Raising transaction fees can fix this. Even with an increase, fees would be very minimal. I believe HBAR has a set amount for certain types of transactions, with a set USD equivalent paid in HBAR. I only mention this because our fees are currently still a lot less than HBAR, and even that amount is still accepted as very cheap. Raising our network fees in the amount we are exploring would keep us amongst the cheapest, and bring many benefits to the network.
This is a definite YES from me.
Yes!
I would lean towards 20x increase however also have a function to increase or decrease later. Once price per XDC reaches $1-$2, the 20x May actually be more than institution/enterprises wish to pay at 100k tx per minute. Especially when we have pitched "Near Zero Gas Fees" for 3-4 years.
I also suggest when creating the decentralized payout for nodes, we utilize NFTs with a redeem feature. This allows the NFT to accept rewards, not the wallet, therefore it's not a taxable event until the owner redeems rewards.
He may choose 1x a month or 1x a year for organization on taxes. He may chose 1x every 4 years and try to time the bottom of market to avoid costly taxes. It's the choice of the NFT holder.
When this takes place I also suggest offering validator nodes and standbys a time period to change wallets and add more security to the network. (Maybe requires an additional proposal)
Great suggestions.
Also, yes - personally, I think the best way forward is probably to ensure that we can change the TX fees as needed. So, when the price of XDC is way up, we can lower the fees again if necessary. Adaptability.
Whilst I support a marginal increase in tx fees for the above stated reasons, one important feature we could also consider leveraging from the xrp ledger to increase security and mitigate ddos risks is the fact that wallets require a certain amount of xrp tokens to be locked to active a wallet. This significantly increases the cost of an attack over and above the transaction fee itself and reduces some of the excess liquidity. Maybe we could find the right balance between tx fee increase and a reserve amount of xdc to activate/ maintain a wallet to help solve the above.
Good suggestion. In future proposals, we'll carefully consider all available options, including this ones.
Yes but, even a marginal increase in tx fee is not significant to deter a ddos attack that could lead to millions + in damages or theft. If this proposal is partially about security, why not include it in this proposal? If we are not addressing security properly in this proposal, it becomes less about security and more focused on increasing rewards for masternode holders...
There are a number of decisions we'll have to make going forward. For now, I've only proposed increasing the TX fees. There are a number of possibilities that open up after we increase the TX fees, like establishing a burn and changing the way in which MNs are rewarded, but those are big decisions, which require additional proposals and votes. For now, you're simply voting on whether to increase TX fees (security being the main reason for that). Later, if this vote passes, we'll vote on how much to increase the fees by, the burn, and the MN rewards.
I agree we need to address security 100% and i thank you for your time and effort you have put into this proposal, but this feels like we are approaching it from the bottom up and figuring it out as we go along as opposed to a top down approach where we have a more complete vision in mind and are executing on individual proposals that work towards that more complete vision.
I vote against this proposal for now, though assume I'll be out voted, however in the future regardless of outcome, I would be happy to work with you to frame subsequent proposals in a different way that present a more complete vision.
Absolutely YES
Though XDC Network can continue with this negligible TX fee, but if it's at cost of network Security and spam then increasing TX fees to an optimum level is a must but with flexibility to change in future keeping XDC Value in future.
Vote = Yes
vote = yes
Vote == Yes
Vote == YES
I won't comment much because I read other comments and other made some excellent points which I won't simply echo. However, I'd like to point out 1 comment which suggested a fix price transaction fee in USD such as $0.01 or $0.001. I told think this will facilitate institutional adoption because the fees to transact are predictable. I also think it would be a great idea to implement a mechanism where by the fee can be increased or decreased by community vote should the price of XDC increases or decreases significantly from it's current price. Deflation is a great thing and security is a necessary thing. Let's get this done!
VOTE = yes
I agree that a TX fee increase will not only contribute to the added security of the xdc network but even if we 25x it (lets say to 0.01 xdc) we're still going to remain competitive within the ecosystem.
Especially compared to cryptos such as ethereum whilst adding the extra security which is needed.
On that point, I agree with other people that we need to be careful on the burn mechanism because we don't want to burn the entire supply and like someone mentioned (have a strongblock situation where we're screwed) don't forget our huge supply is warranted due to the large market in which we're placed.
Overall, I vote YES.
VOTE Yes
VOTE = YES
increase TX fees 10x
YES.
But there should also be a mechanism to regularly adjust the transaction fees based on the market price of XDC, when the price increases substantially.
Vote= YES
Yes
YES.
We should also look into dynamic price mechanism - with this there should not be a need to change the fees again in future when the XDC Price increases.
YES
Vote == Yes
Yes
Yes
Vote = YES
I VOTE YES!
But is important create a mechanism to ajust the fees price when the price of xdc goes up or this can be a problem in a future where xdc would cost 5 or 10usd per xdc.
Vote = Yes