Transactions fees in DAG blockchain

Directed Acyclic Graph (DAG) blockchain applications represent an evolution from traditional linear blockchain solutions, addressing their inherent scalability issues. The analysis of the transactions fee market in these applications proves particularly insightful, given their demonstrated ability to manage very high transaction throughputs, and the crucial role transaction fees play in blockchain sustainability, efficiency and security, as a mechanism to incentivize validators and regulate network congestion.

This research addresses a gap by assessing the transactions' supply and demand characteristics and their influence on the related fees within the four largest DAG blockchain applications by market capitalization, namely Hedera, Kaspa, Iota and Conflux. The analysis reveals diverse approaches to transaction management across these applications, deriving from price and market entry regulation to open competition and unrestricted entry for miners, directly influencing the level and predictability of fees paid by users. Based on extensive datasets, the analysis demonstrates a surplus of space for transactions in these applications, with the number of transactions handled significantly below the effective capacity. This high supply explains the extremely low transaction fees currently achieved in permissionless Kaspa, Iota and Conflux, lower than markup-driven fees in permissioned Hedera, in contrast to the substantially higher fees paid in Bitcoin. On the other hand, the findings highlight the need for operational cost coverage to encourage miners’ participation in permissionless applications, minimizing security and sustainability risks.