Thanks for the thoughtful questions and perspectives @Camelot @gi0rgos @Jonezee @shogun
It’s difficult to produce precise projections for how a 2x increase to the minimum base fee may influence arbitrage, market-making, and user flows, holistically - these behaviors adapt to many variables. However we can lean on historical usage - the minimum base fee was previously 10x higher (0.1 gwei) before the Arbitrum Security Council was requested to take a non-emergency action to reduce it to 0.01 gwei in March 2024; activity across DeFi protocols (including DEXs and perps) remained healthy before that reduction.
The intent behind the proposed fee curve changes is to smooth out the user experience of fees during high-activity events, while the intent behind the related proposed 0.02 gwei minimum is to not meaningfully impact typical user experience but to balance and stabilize DAO revenue as the smoother fee curve reduces surplus fees. At the same time, the adjustment in the base fee helps make spam-style bot activity more expensive, which causes unpredictable fees for organic users. The adjustment remains well within historically permissible parameters for the ecosystem.
For a deeper explanation of the rationale, we encourage reading this response from @Entropy
Entropy Advisors is strongly in favor of this proposal. As always, thank you to the Offchain Labs team for putting this together.
However, we are in favor of modifying this proposal to also include a 2x of the minimum base fee from .01 gwei to .02 gwei. We wrote extensively about this topic and our rationale behind our view point here.
To quickly summarize, we estimate that roughly 80-90% of daily transactions conducted on Arbitrum One are bot-driven in nature. While increasing the minimum base fee has a minimal effect on “average” users that engage with applications in an organic manner, it will increase the costs of transacting for bot operators. We view this as positive, as it could help prevent spam-motivated bots that congest the network for ordinary users, and could even push arbitrage bots to engage with Timeboost and make the product a more competitive marketplace.
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As a side benefit, a slight increase to the L2 min base fee will also ensure the DAO does not experience a decrease in revenue, while also improving the revenue predictability and thus financial forecasting/budgeting capabilities of the DAO. As can be seen in the image below, L2 Surplus Fees generate a lot of revenue for the DAO but are more sporadic in nature. This leads to a less than ideal UX for organic users on Arbitrum One during times of congestion, which is why we are in support of this proposal from OCL. It is simply not worth the added revenue that accrues to the DAO.
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In contrast to L2 surplus fees, the L2 base fee provides a much more stable source of DAO revenue (image below) and does not come at the expense of organic users’ experience. The L2 min base fee on Arbitrum One was previously set to 0.1 gwei prior to the ArbOS Atlas upgrade, so we already know that this is a safe change to make.
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Over the past 90 days, the DAO has generated ~$6.7M of revenue from transaction fees, of which only $1.8M was derived from the L2 base fees and the remainder coming from L2 surplus fees. With this proposal, the L2 surplus fees are set to be drastically reduced. However, if we increase L2 min base fee from .01 gwei to .02 gwei, paired with the increased gas target per second and subsequent increase in daily transaction count from bots, the min base fee increase should help offset the revenue decline in L2 surplus fees.
To sum it up - we are in favor of this proposal as is, but believe it is made stronger by incorporating a slight increase to the L2 min base fee. This has the potential to increase Timeboost participation, make spam activity more expensive to conduct (thus providing more, cheaper block space for organic users), and offset the decline in L2 surplus fee-derived revenue by increasing L2 min base fee-derived revenue which is more predictable in nature.
