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iip-49.md

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+# IIP-49: Enhancing Block Rewards Allocation with EIP-1559 Priority Fees
+
+**Title:** Enhancing Block Rewards Allocation with EIP-1559 Priority Fees  
+**Author:** Dustin Xie  
+**Last update:** 2025/4/3  
+**Discussion Link:** TBD  
+**Github Link:** TBD
+
+---
+
+## Abstract
+
+Starting from IoTeX v2.1.0, the blockchain has integrated EIP-1559 transactions, introducing priority fees that are awarded to block producers. Currently, block producers receive a fixed block reward of 8 IOTX plus any additional priority fees included in transactions.
+
+To improve the sustainability of the rewarding pool, this proposal modifies block reward allocation by incorporating priority fees into the fixed 8 IOTX reward mechanism. Specifically:
+
+1. If the total priority fee is below 8 IOTX, the rewarding pool contributes the difference (8 - priority fee) to maintain an 8 IOTX total block reward.
+2. If the priority fee exceeds 8 IOTX, the rewarding pool does not contribute more, and the block producer receives the full priority fee amount.
+
+This ensures that higher network activity reduces reliance on the rewarding pool, slowing its depletion over time.
+
+---
+
+## Motivation
+
+The IoTeX blockchain currently distributes a fixed 8 IOTX per block from the rewarding pool, regardless of network activity. However, the integration of EIP-1559 priority fees in recent v2.1.0 hard-fork introduces an opportunity to adjust block rewards dynamically, reducing unnecessary token emissions.
+
+By using priority fees as part of the block reward, we achieve the following benefits:
+
+- Extend the lifespan of the rewarding pool by reducing the amount withdrawn per block when network activity is high.
+- Encourage validator participation by ensuring block producers receive fair compensation, especially during periods of high transaction volume.
+- Maintain network security by preserving an incentive structure that rewards active validators.
+
+---
+
+## Specification
+
+### Current Block Reward Mechanism
+
+- Block producers receive a fixed 8 IOTX reward from the rewarding pool.
+- Priority fees from EIP-1559 transactions are added on top of this fixed reward.
+- No adjustments are made based on network activity.
+
+### Proposed Block Reward Mechanism
+
+1. Total block reward remains capped at 8 IOTX, unless the priority fee exceeds 8 IOTX.
+2. If the priority fee is below 8 IOTX, the rewarding pool contributes the difference (8 - priority fee) to make a total of 8 IOTX block reward.
+3. If the priority fee is 8 IOTX or more, the rewarding pool does not contribute more, and the block producer receives the full priority fee amount instead.
+
+### Example Scenarios
+
+| Priority Fee (IOTX) | Rewarding Pool Contribution (IOTX) | Total Block Reward (IOTX) | Notes                                   |
+|---------------------|-------------------------------------|----------------------------|-----------------------------------------|
+| 0                   | 8                                   | 8                          | Full reward from pool                   |
+| 3                   | 5                                   | 8                          | Partial priority fee + pool top-up      |
+| 7.5                 | 0.5                                 | 8                          | Minimal pool contribution               |
+| 8                   | 0                                   | 8                          | All reward from priority fee            |
+| 10                  | 0                                   | 10                         | Priority fee exceeds 8, no pool needed  |
+
+---
+
+## Rationale
+
+- **Sustainability:** The rewarding pool depletes at a slower rate, ensuring long-term economic viability.
+- **Fair Compensation:** Block producers receive the same minimum reward (8 IOTX), but can earn more when network activity is high.
+- **Scalability:** As more transactions generate priority fees, the need for direct token emissions decreases.
+
+---
+
+## Implementation
+
+This will be implemented as a hard-fork, with changes activated at the next hard-fork height:
+
+- Modify the block reward calculation logic to adjust the rewarding pool allocation dynamically based on priority fees.
+- Update IoTeX consensus nodes to enforce the new reward distribution model.
+- Ensure backward compatibility with existing reward structures for a smooth transition.
+
+---
+
+## Backward Compatibility
+
+This proposal does not affect existing transactions or smart contracts. It solely modifies how block rewards are allocated starting at the next hard-fork height, ensuring backward-compatible integration into the current IoTeX economic model.
+
+---
+
+## Security Considerations
+
+- The proposal does not introduce new attack vectors or affect existing consensus mechanisms.
+- Block producers continue to receive fair rewards, maintaining network security.
+- As a result of this change, the rewarding pool will be depleting at a slower rate, ensuring long-term economic sustainability.
+
+---
+
+## Conclusion
+
+By incorporating priority fees into block rewards, this proposal enhances IoTeX’s economic sustainability while maintaining strong incentives for block producers. The rewarding pool depletes at a slower rate, allowing IoTeX to sustain validator rewards for a longer period, even as transaction volume grows.