Riding the Roller Coaster: Gas Fee Spikes Demystified

Understanding Network Fee Dynamics and Gas Fee Spike Investigations

Network fees represent one of the most frequently discussed topics in blockchain technology, particularly on the Polygon Proof-of-Stake network. Understanding the mechanisms behind gas price fluctuations is essential for users and developers seeking to maintain network affordability and usability.

In recent blockchain investigations, network researchers received multiple inquiries regarding unusual transaction fee spikes on Layer 2 solutions. Users reported transaction fees exceeding 4 MATIC, while the median average should have been approximately 0.05 MATIC. This significant discrepancy prompted comprehensive investigations into the root causes of these fee anomalies across various blockchain networks.

The investigation focused on specific periods of network congestion. The engineering team discovered that only a negligible percentage (less than 0.03%) of transactions were priced above 4 MATIC, indicating that high fees were exceptional rather than systemic. Through detailed analysis and filtering of transaction data, researchers identified approximately 1,340 failed transactions priced at 1 MATIC or higher, with 98% originating from a single smart contract. These transactions were priced approximately 60 times higher than typical transactions, suggesting deliberate and unusual behavior.

Investigation tools including blockchain explorers, transaction analysis platforms, and intelligence services revealed that the smart contract was engaged in arbitrage activities. The contract acquired assets from decentralized exchanges at lower prices and subsequently sold them on other platforms at higher prices. This arbitrage strategy aimed to profit from price discrepancies while theoretically improving market efficiency. The contract operators deployed a proxy contract enabling bytecode updates without changing the contract address, and funded multiple bot accounts to interact with the arbitrage mechanism. These bots competed by simultaneously sending identical transactions with the same parameters, creating a coordinated network effect. Over several months, this operation reportedly extracted approximately $230,000 in value.

The Role of MEV and Priority Gas Auctions in Fee Volatility

Maximal Extractable Value (MEV) refers to the maximum value that can be extracted from block production in excess of standard block rewards and gas fees by including, excluding, or reordering transactions. MEV encompasses various activities including DEX arbitrage, liquidations, sandwich trading, and NFT-related operations. Understanding MEV is crucial to comprehending why investigated smart contracts engaged in transaction spamming behavior to optimize MATIC gas fees.

On Polygon and other Layer 2 blockchains, MEV activity primarily resolves into Priority Gas Auctions (PGAs). In a PGA environment, competing bots engage in fee bidding wars, progressively increasing transaction fees to secure priority placement. This mechanism creates negative externalities, causing dramatic gas spikes that adversely affect ordinary users. This represents "bad" MEV, as it degrades network conditions and increases MATIC gas fees for the broader user base.

However, not all MEV activity is detrimental. Certain MEV activities, such as arbitrage operations that ensure users receive optimal token prices on decentralized exchanges, provide legitimate value. For arbitrage contracts, the high throughput and low baseline fees on Polygon PoS made transaction spamming economically rational. Although initial transaction spam incurs financial losses through elevated gas costs, the expectation was that accumulated arbitrage profits would ultimately exceed these expenses, generating net positive returns over time.

To address negative MEV impacts, network developers are pursuing several initiatives. These include quantifying MEV's impact on Polygon PoS through comprehensive analysis projects that examine MEV effects on Layer 2 solutions. The Proposer-Builder Separation (PBS) concept represents another promising mitigation strategy. By separating transaction ordering decisions from block proposal processes, PBS reduces the ability of validators to manipulate transaction sequences for personal profit. This architectural change creates dedicated channels for bot bidding, reducing spam, front-running, and sandwiching transactions while encouraging beneficial MEV activities that improve user outcomes.

Base Fee Mechanics of EIP-1559 on Polygon

EIP-1559 represents a fundamental improvement to blockchain fee market mechanisms, with significant implications for Polygon's fee structure and MATIC gas fees. Prior to EIP-1559 implementation, transaction fees operated via price-first auctions. Users would bid amounts for validators to process their transactions. This created substantial inefficiencies: users faced unpredictable fee costs and frequently overpaid for gas, while transaction confirmation required waiting through multiple blocks. The user experience remained poor and unpredictable.

EIP-1559 introduced a bifurcated fee structure comprising a base fee and a priority fee (tip). The base fee represents the minimum amount required for transaction inclusion in the next block, adjusted algorithmically based on network congestion by ±12.5%, improving fee predictability and MATIC gas fee stability. The priority fee incentivizes validators during high-congestion periods. Critically, while validators receive priority fees, the base fee is burned, removing this value from circulation. This mechanism significantly improved fee stability and predictability across the network.

It is important to clarify that EIP-1559 did not reduce average gas prices; rather, it enhanced fee estimation accuracy and reduced overpayment risks. Users can now set two bid parameters: a fee cap and a tip above the base fee, avoiding the previous model's overpayment penalties when network conditions improve.

The base fee calculation follows a geometric sequence governed by specific parameters. The base fee adjustment for each block depends on gas utilization relative to the target. When blocks achieve full utilization, base fees can swing by ±6.25% per block on Polygon PoS. This represents half the percentage variation compared to Ethereum, due to Polygon's higher base fee change denominator.

During network congestion investigations, researchers observed the base fee increasing significantly within short timeframes. Given that each fully utilized block can increase the base fee by 6.25%, rapid fee escalation becomes particularly pronounced during peak network activity. Since Polygon produces blocks approximately six times faster than Ethereum (2-second versus 12-second block times), rapid MATIC gas fee escalation becomes particularly notable.

To mitigate such extreme fluctuations, network developers are investigating parameter adjustments including decreasing the ElasticityMultiplier or increasing the BaseFeeChangeDenominator. These modifications would dampen base fee swings, maintaining greater price stability during periods of intense network utilization and reducing MATIC gas fee spikes.

Conclusion

Investigations into network gas fee spikes revealed critical insights into the interaction between MEV activities, bot behavior, and EIP-1559 fee mechanics. Coordinated arbitrage bot networks deliberately engaged in transaction spamming to secure priority execution, creating negative externalities affecting other users through elevated MATIC gas fees. This case study illustrates the complex dynamics of decentralized finance and the importance of proactive network management.

Network developers are pursuing multiple complementary solutions to ensure long-term network affordability and usability. Parameter adjustments to EIP-1559 calculations, including modifications to ElasticityMultiplier and BaseFeeChangeDenominator values, will reduce base fee volatility during periods of high demand. Simultaneously, ongoing efforts to quantify MEV impacts and implement Proposer-Builder Separation architecture will reduce negative MEV externalities while preserving beneficial arbitrage mechanisms. Through these coordinated measures, blockchain platforms aim to maintain fair, secure, and cost-effective ecosystems supporting mass adoption of Web3 technologies.

FAQ

Does Polygon have high gas fees?

No. Polygon offers significantly lower gas fees compared to Ethereum, typically costing fractions of a cent per transaction. This makes it ideal for frequent, cost-effective interactions on the blockchain.

Which blockchain has the highest gas fees?

Ethereum typically has the highest gas fees among major blockchains due to high network congestion and transaction volume. However, gas fees fluctuate based on network demand and can vary significantly across different blockchains and time periods.

What crypto has the lowest gas fees?

Nano (XNO) and Iota (IOTA) offer zero gas fees, while Bitgert (BRISE) and Tron (TRX) have extremely minimal fees. Layer 2 solutions like Polygon also provide significantly lower gas costs compared to mainnet Ethereum.

What is the minimum priority fee for Polygon?

The minimum priority fee for Polygon PoS mainnet is 30 gwei. This is a mandatory requirement when submitting transactions to ensure proper processing.

How can I reduce gas fees on Polygon?

Batch transactions to process multiple operations at once, use layer 2 solutions, optimize smart contract code, choose off-peak hours for transactions, and consider using gas price optimization tools to minimize costs effectively.

How are Polygon gas fees calculated?

Polygon gas fees are calculated by multiplying gas price by gas limit. Users pay in MATIC tokens. Fees typically range from $0.0005 to $0.01 USD, significantly lower than Ethereum due to Polygon's optimized network design.