Understanding EIP-3074 and what it means for Hedgehog
What is EIP-3074?
EIP-3074, titled AUTH and AUTHCALL opcodes, is an Ethereum Improvement Proposal set to change how Ethereum handles transactions and smart contracts — basically it will allow externally owned accounts (aka wallets) to delegate control to a contract.
Like the name says, this proposal introduces two new EVM instructions: AUTH and AUTHCALL. AUTH sets a context variable called authorized based on an ECDSA signature, while AUTHCALL sends a call as the authorized account. This essentially delegates control of an externally owned account to a smart contract, allowing for enhanced functionalities without changing the transaction format or breaking existing tools.
Impact on the Gas Market and Gas Sponsorships
The introduction of EIP-3074 is expected to have significant implications for the gas market and gas sponsorships. Traditionally, users have faced challenges with transaction fees, especially during times of network congestion. Gas fees are one of the biggest barriers of entry in crypto, complicating the user experience and hindering broader adoption of dApps.
- Gas Sponsorship Simplified: One of the most promising aspects of EIP-3074 is the potential for gas sponsorship. With this EIP, a relayer can pay for a user’s transaction without the transaction showing the relayer’s address as msg.sender. This simplifies the process of gas sponsorship, enabling dApps and services to cover gas costs for users, thereby making interactions more seamless and cost-effective.
- Enhanced User Experience: By enabling gas sponsorships and simplifying transactions, EIP-3074 can significantly improve the user experience on Ethereum. This is particularly beneficial for new users who might find the complexities of gas fees and transactions daunting.
- Dynamics of Gas Prices: As EIP-3074 makes gas sponsorships more feasible, it also introduces new ways to calculate gas costs of these transactions. With a portion being static gas costs and also dynamic gas costs. It will be interesting to follow the impact of this and the adoption of these new types of transactions in the overall gas consumption.
- Better UX: One of the things to look for is to see how the introduction of EIP-3074 will affect the adoption of sponsored gas fees, bundled transactions, basically every account abstraction innovation, but without having to create a Smart Contract Wallet.
What EIP-3074 means for Hedgehog
As we’ve described in previous articles, Hedgehog Protocol is building a modular synthetic blockspace which allows for a gas fees derivatives market to be built on top of it. EIP-3074 potentializes Hedgehog’s markets in several innovative ways:
1. Adoption of Bundlers: EIP-3074 makes it easier for dApps and services to bundle transactions. Bundlers can now leverage the gas sponsorship capabilities provided by EIP-3074, allowing them to cover gas fees for multiple transactions efficiently. Hedgehog can facilitate these bundlers by providing derivatives that hedge against gas price volatility, ensuring predictable costs for them.
2. Adoption of gas Sponsorships: The simplified gas sponsorship mechanism introduced by EIP-3074 allows for more widespread adoption of gas sponsorships. Hedgehog can play a critical role here by offering financial products that enable businesses to hedge their gas sponsorship expenses, as we can expect that with the adoption of these sponsorships, gas overall gas costs will tend to concentrate in the hands of fewer players, which can themselves hedge against gas fees. This can make gas sponsorships cheaper and more predictable for these sponsors, allowing for better financial planning, knowing they can manage their exposure to gas price fluctuations effectively.
3. Enhanced Market Dynamics: EIP-3074’s ability to separate the transaction originator from the gas payer can lead to new market dynamics. Hedgehog’s modular infrastructure can be used to develop derivatives based on these new dynamics, providing tools for market participants to speculate on or hedge against the cost of sponsored transactions or the dynamic fees of these kinds of transactions if the market is big enough. This can lead to a more vibrant and liquid market for gas derivatives.
Ideas of Use Cases that Could be Triggered by EIP-3074
- Gas Subscription Service for Businesses:
- Subscription Plans: Offer various subscription tiers based on expected transaction volumes and gas usage.
- Automated CDP Management: Hedgehog automatically sets up and manages Collateralized Debt Positions (CDPs) for businesses, using wstETH as collateral to mint Base Fee tokens.
- Simplified Interface: Provide a user-friendly dashboard for businesses to monitor their gas usage, subscription status, and costs.
2. Gas Sponsorship as a Service:
- Service Offering: Allow other blockchain projects to use Hedgehog’s infrastructure to manage and hedge their gas costs.
- Monitoring Tools: Provide tools for monitoring gas prices, predicting cost trends, and automating gas sponsorships.
3. DeFi Innovations:
- Insurance Products: Offer insurance products that protect against gas price spikes.
- Savings Accounts: Create savings accounts that accrue interest based on gas fee fluctuations.
4. Enterprise Solutions:
- Stable Transaction Costs: Enterprises can stabilize their operational costs by subscribing to Hedgehog’s gas management service.
- Predictable Expenses: Ensure predictable and manageable expenses for businesses using Ethereum for their operations.
Conclusion
EIP-3074 is another great step to simplify DeFi UX, facilitating the adoption of innovations that have been worked on for some time, and didn’t get overall adoption yet (account abstraction). By leveraging Hedgehog’s CDP-based derivatives market and the new capabilities introduced by EIP-3074, we can create robust gas fee management solutions that simplify the user experience even more and provide businesses with the tools they need to manage their gas costs effectively. This will not only enhance the adoption of dApps but also open up new opportunities for financial innovation in the Ethereum ecosystem.
About Hedgehog Protocol
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