In 2020, with the full firepower of Ethereum in the vertical field of DeFi (decentralized finance), according to DeFiPulse, the total locked value (TVL) of smart contracts has increased by 20 times year-to-date. According to Etherscan data calculations, the 30-day average Ethereum gas fee continued to rise in 2020 and hit a record high on September 25 with a monthly average of 198.966 Gwei.

Most DeFi products use smart contracts to combine related development modules to build financial agreements, and users can interact with them in a "decentralized" way to obtain financial services (such as digital currency trading, lending and derivatives). To this day, these products are still experimental products, and the opposite of a lower-threshold access mechanism is more security risks and service fees.

Due to the increasing usage scenarios of products on the Ethereum chain, smart contracts interact more frequently between different protocols, making the Ethereum network more congested.

Just imagine the daily life of a blockchain geek enthusiast: first convert Bitcoin and Ethereum into wBTC and wETH, and then part of it is used to buy favorite tokens on an aggregator platform such as 1inch, and part of it is deposited into the decentralized trading platform Uniswap for exchange. Liquidity mining is exchanged for LP governance tokens, and the last part is put into the “forked” DeFi protocols one by one to try to earn returns.

According to the data analysis company Glassnode, the amount of Gas used in Ethereum transactions and the income of miners currently supporting the proof of work of the Ethereum blockchain have surpassed the level of 2017 and reached a new high. Behind the attractive short-lived high annualized yield (APY) brought by DeFi experimental products one after another, in addition to the dividends enjoyed by early ecological participants, Ethereum miners, "scientists" and hackers also received delicious rewards. cake.

Before 2020, few developers and traders mentioned the Gas issue, and there were only similar entrepreneurial projects on the Ethereum Hackathon. Following the 3.12 black swan incident and the continuous upsurge of liquidity mining, users discovered that Gas fees directly affected their digital asset portfolios when decentralized financial transactions were blocked on a large scale.

At present, the blockchain development community has several common Gas solutions, which are usually deducted and refunded for contract derivatives and smart contracts written using the Gas pricing mechanism.

The design of Gas contract derivatives is a zero-sum game based on the expected price of Gas between buyers and sellers, such as on-chain futures and options products. The uGas-JAN21 of UMA Protocol, which was launched recently, is a futures product. Within a week of its launch, the pool size reached 188 ETH, and there were about 27 user addresses.

The Chi GasToken designed by the 1inch team has 4,504 user addresses and a pool size of about $1.2 million. These two types of solutions are currently in the early stages, but are gradually accepted by users.

Due to the unpredictability of Gas, it is dynamically calculated according to the situation of the mining pool, and its fluctuation is very large, sometimes it is a single-digit Gwei, and sometimes it exceeds 500 Gwei, so it has also attracted the attention of some speculators, such as some DeFi "scientists" Explore ways to make money from gas transactions in the community. However, the fact that the risk of "loss" can be transferred through multiple tools has a positive effect on ecological development, allowing DeFi users to manage Gas prices like investments.

There are currently two types of products that are popular in the market. The simpler one is to use the characteristics of the long-short zero-sum game of derivatives to match the expected price of Gas between buyers and sellers.

Another category is to more cleverly use the Gas pricing mechanism of the Ethereum Virtual Machine (EVM) to insert "burden-reducing" codes into the contract, such as cleaning/self-destructing contracts, cleaning and deleting storage, etc., to keep the code concise, so that Received a Gas refund. The tokenization of such smart contracts is called GasToken.

GasToken generation 1 and generation 2 were proposed and developed by programmers such as Lorenz Breidenbach 3 years ago. At present, the more active one in the market is Chi launched by 1inch based on GasToken 2 generation. According to the 1inch article, it improved the efficiency of GST2 by 10% through modification.

The figure below compares the market prices of Chi and UGas-JAN21 with the Ethereum Gas price. Although the two types of products cannot be fully linked to the daily gas price changes, they are related in terms of trends. For example, as the gas fee rose from August to September, the price of Chi also broke through a new high. The newly launched on-chain uGAS-JAN21 contract also remained at $40 after a brief increase in Gas in late November. With the reduction of the Gas rate, it returned to base. However, since the token price of uGAS-JAN21 represents the expected price of Ethereum Gas fees on January 21, 2021, it is not sensitive to changes in the current Gas fee rate, and even the changes are completely opposite.

Although the purpose of hedging Gas is to reduce the loss risk of operations on the chain, the price of its tokens is completely based on market findings, and there are deviations, which are "experimental" products.

The uGAS-JAN21 futures launched by the DeFi protocol UMA recently belongs to the first category of derivatives design, with a market value of about 160,000 US dollars, which is one-tenth of Chi GasToken, and the number of DeFi users who use Chi GasToken to hedge losses is larger.

These two Gas products are not designed for "investment transactions". Their main logic is to mint Gas tokens when the Ethereum Gas fee is low, and sell (or burn) tokens at a high price to offset part of the transaction fee when the Ethereum network is congested . However, since they are all in ERC20 format and circulated on Uniswap, 1inch and Curve trading platforms, their price discovery is also affected by the secondary market.

Due to the short launch time, the correlation coefficient between uGAS--JAN21, a Gas derivative product with few sample data, and Ethereum's intraday Gas price is 0.17, which is less than Chi Gastoken's 0.55, both of which are positive correlations.

The correlation coefficients are all positive, indicating that the market prices of Chi and uGAS-JAN21 are consistent with the real Gas price, and the higher the coefficient, the higher the degree of correlation, and the more sensitive the token market price is to the Gas price. Therefore, the current market price of Chi Gastoken with a larger user base is more similar to the change of the real Gas fee price.

, Use data to understand the blockchain.

LongHash, Use data to understand the blockchain.