Transaction fee burn

What is Transaction Fee Burning?

Transaction fee burning is a mechanism where a portion of the transaction fees collected from network activity is permanently removed from circulation. Instead of rewarding miners, validators, or the protocol treasury with the full fee, a percentage is “burned” to reduce the total token supply over time.

This method is commonly used in deflationary tokenomics to counterbalance inflation, increase scarcity, and drive long-term token value.

Why Implement Transaction Fee Burning?

1. Maintains Continuous Deflation Unlike scheduled supply burns, transaction fee burning occurs dynamically with every network transaction. The more activity on the network, the more tokens are burned, ensuring a continuous deflationary effect.

2. Creates a Self-Sustaining Economy High demand for network usage (transactions) leads to more burns. This means that as adoption grows, token scarcity naturally increases, benefiting long-term holders.

3. Aligns Incentives Between Users and Holders Users pay fees as part of using the network. Long-term holders benefit because the supply decreases with every transaction, potentially increasing token value over time.

4. Combats Inflationary Pressures If a token has staking or emissions-based rewards, fee burning helps offset inflation by removing excess supply. Example: Ethereum burns a portion of gas fees to balance issuance from staking rewards.

How Does Transaction Fee Burning Work?

1. A transaction occurs on the network (e.g., payment, smart contract execution). 2. Users pay a transaction fee to process the transaction. 3. A portion of the fee is burned, permanently removing tokens from circulation. 4. The remaining fee is distributed to validators, miners, or the protocol treasury.

Exact model for DAGS transaction fee burning is yet to be decided. Here is an example breakdown:

Total Transaction Fee: • Burn Percentage: 30% of the fee is burned • Remaining 70% goes to witnesses (validators) as rewards.

As more transactions occur, the burning effect compounds, reducing total supply over time.

Benefits of Transaction Fee Burning

Sustainable Deflation → Continuous supply reduction without relying on periodic burns.

Increased Token Scarcity → The more network usage, the scarcer the token becomes.

Supports Long-Term Price Appreciation → Less supply often leads to increased value.

Encourages High Network Activity → More transactions = more burning = better ecosystem value.

Transaction Flow → User pays a fee → Portion is burned → Supply decreases.