Burning transaction fees generated on Relay Chain and System Chains like Asset Hub (Plaza soon)

What is done with transaction fees on Polkadot in this moment:

What I’m proposing is that issuing DOT through inflation to cover expenses and then burning the income from fees is functionally equivalent to a direct transfer of value from users to validators and other network-supporting actors.

Detailed Explanation of the Value Transfer

  1. Inflation as a Payment Source: When additional DOT is generated through inflation, those funds are used to pay validators and fund the treasury. This additional DOT acts as a “subsidy” that ensures the network’s critical operations are covered.

  2. Burning Fees as a Balance Mechanism: If we then burn the revenue generated from fees, we are effectively removing that value from circulation. It’s as if the value collected from users who pay fees indirectly flows to validators and the treasury via inflation, while the fees are burned to offset the issuance.

  3. Equivalence to a Direct Value Transfer: This combination of inflation and burning fees is, in effect, an indirect way of transferring value from users who pay fees to validators and other network actors. The burning neutralizes the net inflation effect, resulting in a transfer of value without increasing the total amount of DOT in circulation.

Benefits of this Approach

Economic Efficiency: This is an efficient way to transfer value within the system, ensuring that the users who use the network contribute to covering costs, without impacting the global supply of DOT.

Balanced Incentives: This mechanism ensures that validators and other participants receive rewards without the need for an indefinite increase in the DOT supply, which benefits long-term holders.

Simplicity and Transparency: From a design perspective, this structure of burning fees and issuing through inflation is equivalent to a direct value transfer. It simplifies Polkadot’s internal economy and allows users to clearly understand where the value they contribute is going.

Summary:

In Polkadot, a certain amount of tokens (DOT) is created each year through inflation. This money is used to pay validators, who keep the network secure, and to fund projects in the treasury. When network users pay fees for transactions, those fees also generate additional revenue.

The proposal is to burn (destroy) those fees instead of saving them, since operational costs are already covered by inflation. Burning the fees has two benefits:

  1. Fair Value Transfer: Instead of accumulating unnecessary DOT, the value users pay in fees ends up directly benefiting validators and other network participants, without increasing the total supply of DOT in circulation.

  2. Protecting DOT’s Value: By destroying the fees, we prevent the total DOT supply from growing more than necessary, which helps keep the token’s value stable.

Thus, burning the fees is like making a fair and transparent transfer of value between the users who use the network and the validators who keep it running, without overloading Polkadot’s economy.

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