Gas markets ⛽️ Blockspace & BaseFee in the Ethereum ecosystem. L2 rollups, account abstraction, and more.
“Gas fees, gas spiking, what is happening to gas fees”…
— We hear this every day!
Don’t believe us? Go connect your address to https://fees.wtf/ and see how much you’ve spent. Hint: this open tool at some point made a weird token at the peak of the cycle; ignore all that information. Just check gas.
“Is gas important? “— Absolutely! And is only growing…
Be it Ethereum, Layer 2 networks, any EVM chain, or Bitcoin — gas fees are (or should be) inherent to the security and economic assumptions of blockchains. We can’t live without them! Yet many see it as the main obstacle to worldwide adoption, rip coindesk.
Today, we want to dive into the first market Hedgehog is looking into for V1 and talk more about gas. Before we dive into who and how, let’s first look at the numbers. Since Ethereum launched a few years ago:
- over 6,883,045 ETH was spent in gas fees;
- that is 5.73% of total ETH supply today;
- or 12,651,036,710 in USD terms at ETH price today.
That’s quite a few mansions at the coast…
Absolutely incredible! Not all of it has functioned within the same economic model though. It was EIP-1559 (and then Ethereum POS) which started over a year ago. That has contributed to over 300,000 ETH being burned to date, or > 500M USD of ETH burned! See UltraSound for fun.
What we care for in this article is not the burning itself, but the participants who spend gas after EIP-1559. So let’s first get things in order…
“Gas market, what is it?” Blockspace = BaseFee + Priority Fee.
Depending on how you look at the participants and the use case, you might end up with different answers. For example, you can look at the very core of the question: block builders, proposers, and other core consensus participants when it comes to the underlying infrastructure.
If you think of the market in that way, you are likely thinking of blockspace. That implies physical delivery. And that’s a super interesting, a super hard market. Position within a block, economic incentives — many things are not easy. No one better to tell you that than this recent article:
A TLDR if you are truly short on time:
- Even if you sell blockspace, do you sell the first tx in a block or the last? As research shows, the first place is more expensive than the last.
- Why would someone sell in advance that super profitable spot? What’s the rationale for sophisticated players to sell the money-making space?
- If you think of the above, it’s likely that you can only buy junk space. And if that is the case (again, that’s still just an assumption) who is the buyer then? Indeed…
Finding buyers for junk, or sellers for good blockspace — might be hard then. So how about we change the buyers & sellers, but keep the market?!
If you look at the problem from an economic perspective, things become easier. For example, what if you abstract the use case to hedging and speculation? And just don’t go too deep and too granular? Don’t touch the super sophisticated players? Right, that’s what we think!
Starting with BaseFee! Blockspace is for dinner…
But how big is that market?
B2B: rollups, account abstraction wallets, paymasters, etc.
- Using a paymaster with our protocol allows third parties to minimize gas costs, as the paymaster can effectively manage gas fees.
- If the third-party protocol serves users unfamiliar with managing gas fees or want to avoid dealing with it, the paymaster and Hedgehog can simplify this process and enhance the overall user experience.
B2C: degens, speculators, narrative traders.
Let’s not forget about degens, who are usually at the core of any market bootstrap phase: be it a new chain, a DeFi protocol or something else. In a free market, degens can do quite a lot of volumes and execute their own personal strategies, or just trade gas on narratives.
NFT mints, DeFi liquidations, and so on — are all constant organic opportunities to test your skills, speed, and knowledge of Ethereum and other networks. You can do so while making money. That’s similar to sports betting (fantasy football) or betting on politics.
Of course, gas fluctuations are much more predictable, but it has a social aspect. You get to bid on the success (growth) or downfall (decline) of your favorite team. In this case, it’s a Layer 2, Ethereum, or Bitcoin. You can enter medium to long-term positions with BaseFee and essentially execute such bets. Fun, rewarding, and constantly engaging!
B2B and gas… finally?
For over 3 years at least, gas fees and hedging have been somewhat of a conversation in the Ethereum space. But only recently has that really become a big topic, finally! Why?
EF (Ethereum Foundation), Vitalik himself, and devs realized that for adoption to reach new highs — UX (user experience) needs to be majorly improved.
And what better way to do it than to improve onboarding. Social recovery and so on — all enabled by AA (account abstraction). And that means multiple service providers: ERC4337 and paymatsers!
You see, when you ask the end user to hedge their own gas fees, they will tell you to go find your mom. Meanwhile, providers are sophisticated players. They know when, how, what. They can actually code! As such, the B2B market is what will really give the resurgence to gas talks.
Hedgehog… the journey is about to begin!
Welcome to the stage, Hedgehog Protocol 🦔
We don’t just do gas things, we want to tackle many interesting economic on-chain derivatives. Be it Ethereum gas fees, Layer 2 rollups hedging, Bitcoin hashrate, EigenLayer hedging, and more. All of these protocols have economic needs and markets. We are here to turn that user demand from over-engineered complex products — into free markets.
Even though we love blockspace and want to tackle that part of the vertical, we believe it’s too early to do so. The blockspace market can only be done by a player who either already made it (Flashbots) or after getting some market traction. And again, it is a market! So by having even a speculation-driven gas market, it will allow us to offer hedging to actual organic users like rollups and paymasters.
We are keeping blockspace for dinner, let’s start with breakfast! Deliver something live — then over-engineer.
How? With simple models! Stay tuned for the next series as we explore the underlying infrastructure of Hedgehog Protocol V1 and then the main participants in the gas markets of Ethereum ecosystem today.
About Hedgehog Protocol
Gas derivative protocol focusing on AA (account abstraction) wallets, L2 rollups and similar 4337 paymaster use cases for hedging BaseFee. Overall, Hedgehog Protocol is building a secure infrastructure for on-chain financial derivatives that can go beyond Ethereum BaseFee: including Bitcoin hashrate, EigenLayer hedging, and even end user speculation.
Come chat with us!
- Twitter: https://twitter.com/TheHedgehog_io
- Telegram Chat: https://t.me/thehedgehog_io
- Telegram News: https://t.me/thehedgehog_news
- Website: https://www.thehedgehog.io/
