Managing the economics of transaction processing is as crucial as the technology itself. The Solana Virtual Machine (SVM) offers a fascinating case study. Initially, SVM's economic model was straightforward but had its drawbacks. Let's explore the challenges and solutions SVM faced in its journey to create a balanced and efficient blockchain.

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The Initial Challenge

SVM's first approach was based on a simple premise: as the blockchain's capacity was used up, transaction fees would increase. This was like assuming a highway would only have a few cars and traffic would smoothly double its speed as lanes filled up. However, two significant issues arose:

  1. Complex Transactions: Like a highway seeing an unexpected influx of trucks, transactions on SVM quickly became complex, demanding more resources.
  2. Indiscriminate Fee Increases: When traffic increased on the blockchain, fees went up for everyone, not just those causing the congestion. This was akin to making every driver pay more, regardless of their contribution to the traffic.

The Bottleneck Dilemma

The real bottleneck in SVM was akin to a traffic jam caused by a few overused routes. Increasing fees across the board would be like making all roads expensive, deterring people from using them altogether, which isn't practical. The challenge was to manage these hotspots without compromising the blockchain's functionality for other uses.

Innovative Solutions: Execution Priority Fees

SVM's response to this challenge was innovative. They introduced a system where transactions were measured in compute units (CUs), setting a cap per block. This ensured that no single transaction could hog the network, much like limiting the number of trucks on a highway segment.

The key was allowing transactions to offer additional fees for priority processing. This created isolated fee markets, ensuring that essential transactions weren't crowded out by less important ones.

Dealing with DeFI Spam and Economic Back Pressure

SVM also had to contend with DeFI (Decentralized Finance) spam, where countless transactions attempted to exploit small profit opportunities. This was like having thousands of cars entering the highway just to move a few meters forward. SVM's solution was to introduce a dynamic fee system, where the cost of transactions would increase based on their frequency and impact on the network, effectively discouraging spammy behavior.

The Proposal: Write Account EMA Exponential Fees

A proposed solution was to use an Exponential Moving Average (EMA) of CUs used per block. If an account repeatedly hit high usage, its fees would increase gradually. This is akin to a road toll that increases for frequent users during peak hours, encouraging them to use the road less or at different times.

Base Fees and Future Directions

The base fee, or the minimum cost to transact on the SVM, was another area of focus. The goal was to find a sweet spot where the fee was high enough to prevent spam but low enough to encourage genuine use. Imagine a park entry fee that's just right - not too high to deter visitors, but enough to keep the park clean and maintained.

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