Owner: @Frederico Teixeira

Reviewers: 🟨@Martin Strobl 🔺@Juan Pablo Madrigal-Cianci 🟨@Álvaro Castro-Castilla 🟨@David Rusu 🟢@Daniel Kashepava

Introduction

This document explores the design space of transaction fee mechanisms (TFMs) that can be integrated into the Nomos blockchain, with a focus on evaluating their suitability under consistent and comparable conditions.

Transaction fee mechanisms are critical components of a blockchain’s economic design. They regulate how scarce blockspace is allocated by determining who pays how much to include a transaction, how validators are compensated, and whether any portion of the payment is removed from supply (e.g., through burning). These mechanisms must navigate several constraints - for example, validators have full control over block contents, they can insert fake transactions at no cost, and operate in an environment where only accepted transactions are visible on-chain.

Our goals are threefold:

The current recommendation for Nomos is to adopt the exponential form of EIP-1559. This choice was driven by its demonstrated success on Ethereum, its community acceptance, and the lack of a clearly superior alternative.

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This is not a final decision. The purpose of this document is to test that assumption more rigorously and open the space for further exploration.

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To that end, we simulate and analyze two candidate mechanisms, namely the EIP-1559 and the StableFee models**,** under the same transaction demand conditions. The key findings of our simulations include:

That said, EIP-1559 remains harder to model due to its dependence on internal protocol dynamics and its indirect pricing mechanism. Given that it is widely used in practice, this highlights a gap between what is conceptually elegant and what works under real-world constraints. This is a gap we intend to explore in future iterations of this framework.

For transaction fee mechanisms in Nomos' blobspace market (data availability layer), please refer to the companion document NomosDA Fee Market. The full integration of Nomos’ economic model, including the blockspace and blobspace will be detailed in the forthcoming Nomos Economic Model.

Overview

This document investigates how different transaction fee mechanisms (TFMs) perform under comparable conditions, using a simulation framework that standardizes external variables such as demand for blockspace and transaction properties. The focus is on understanding how different fee models shape validator incentives, user bidding strategies, and fee price dynamics over time.

We compare six different TFMs in the following table:

Mechanisms Pros Cons
First Price Auctions (FPAs) - Minimal implementation effort;