[1] Troxler's fading has been attributed to the adaptation of neurons vital for perceiving stimuli in the visual system.
For example, if a small piece of paper is dropped on the inside of one's forearm, it is felt for a short period of time.
Troxler's fading can occur without any extraordinary stabilization of the retinal image in peripheral vision because the neurons in the visual system beyond the rods and cones have large receptive fields.
This means that the small, involuntary eye movements made when fixating on something fail to move the stimulus onto a new cell's receptive field, in effect giving unvarying stimulation.
[2] Further experimentation this century by Hsieh and Tse showed that at least some portion of the perceptual fading occurred in the brain, not in the eyes.