Concept Proposal: Dynamic Fee Adjustment on Algorand via Oracles

General
1

Concept Proposal: Dynamic Fee Adjustment on Algorand via Oracles

1. Introduction

1.1 Problem Summary

Currently, the Algorand blockchain uses a fixed transaction fee of 0.001 ALGO. This fee does not adjust based on ALGO’s market price. If ALGO’s price were to skyrocket (e.g., $1,000+), transaction costs could become prohibitively high.

1.2 Proposal Goal

We propose implementing a dynamic fee model that automatically adjusts transaction costs based on ALGO’s real-time value, ensuring efficiency and decentralization.

2. Proposed Solution

2.1 Utilizing Oracles

Instead of a fixed fee, Algorand would use Oracle price feeds to determine the average market price of ALGO based on data from DEX and CEX sources.

2.1.1 Data Sources

  • Decentralized Exchanges (DEX): Tinyman, Pact, HumbleSwap, AlgoFi DEX.
  • Centralized Exchanges (CEX): Binance, Coinbase, Kraken, OKX, KuCoin.
  • Market Aggregators: CoinGecko, CoinMarketCap, Messari.
  • Algorand-based Oracles: Algoracle, TEAL ALGO Oracle (currently supported on Algorand), potentially Chainlink (if integrated).

2.2 Dynamic Fee Calculation

Transaction fees would automatically adjust based on a moving average price of ALGO:

  • ALGO < $10 → Fee remains 0.001 ALGO.
  • ALGO $10 - $999 → Fee gradually decreases.
  • ALGO $1000+ → Fee drops to 0.00001 ALGO.
  • ALGO $70,000+ → Fee drops to 0.0000001 ALGO.

2.3 Transparency & Decentralization

  • Fee calculations occur on-chain in a smart contract.
  • Data is publicly available and verifiable.
  • Utilizing multiple Oracle sources prevents price manipulation.

3. Implementation Details

3.1 Protocol Requirements

  • Integration of Oracles into Algorand smart contracts.
  • Algorand SDK must support dynamic fee adjustments.
  • Utilization of TEAL ALGO Oracle, which already exists on Algorand, for connecting with price feeds.

3.2 Security Considerations

  • Use of average pricing to prevent manipulation.
  • Cross-checking data from multiple exchanges.

4. Conclusion

This mechanism ensures that Algorand remains efficient and affordable even as ALGO’s price surges, without requiring manual intervention.

2

@Zd3n3k , alas, currently and in the foreseeable future these high ALGO prices are not too probable. See for example the Coincodex Algorand price prediction. I think, that the real problem is that validator nodes may get less and less rewards. The block reward currently is paid from half of the tx fees + AF reward amount, which is 9.9 Algo, but is decreased by 0.1 Algo when a new millionth of block begins. This could be compensated by two ways: either by the number of txns increasing and/or by increasing the txn fees.