The topic of gas fee derivatives has been gaining traction within the Ethereum community this year. In June, Finn, a researcher at Nethermind, proposed a pricing model for Ethereum base fee options, sparking widespread interest in gas-related financial instruments. These tools offer participants in the Ethereum ecosystem new ways to manage the uncertainty of gas fee fluctuations, providing both hedging capabilities against operational cost volatility and new speculative opportunities.
Understanding Base Gas Market: Betting on Future Gas Fee Volatility
Recently, Alkimiya has developed a financial market on Base called Base Gas Market (not yet officially launched) that allows users to trade on the volatility of Base network gas fees, indirectly participating in changes in the network’s economic activity. Alkimiya is a protocol that enables the trading of block space resources, such as transaction fees, by converting these blockchain resources into tradable assets. This helps users hedge against fee fluctuations and opens up additional speculative possibilities.
In the Alkimiya Base Gas Market, users can take long (LONG) or short (SHORT) positions to bet on whether the total gas fees on Base will increase or decrease. If a user believes that Base’s revenue will rise over a certain period, they can go long to speculate on increased gas consumption. Conversely, if they anticipate a decline, they can take a short position. Since these fees are collected by Base’s sequencer, gas consumption effectively reflects Base’s usage and revenue. Thus, this form of trading is essentially a speculation on the future development trends of the Base ecosystem.
Each market pool corresponds to a specific time period, aggregating all long and short positions for that duration. Users who participate in the same timeframe are grouped into one pool. Participants can enter the pool at any time, but exit and settlement occur at the end of the period. Rewards or losses are determined based on the change in total gas consumption during that time.
For example, suppose User A expects multiple airdrop events on Base over the next two weeks, predicting that these events will significantly increase the network’s total gas consumption. User A decides to join a market pool spanning from January 1 to January 15 (a 15-day period). In this market cycle, gas fees are calculated to range between 20 ETH/day and 60 ETH/day (values beyond this range are capped at the minimum or maximum). User A enters the market when the gas fee is 42 ETH/day, predicting that consumption will exceed this value. By purchasing a 1% share of the total gas fees for the market, User A must pay an initial margin: (42 - 20) 15 1% = 3.3 wETH. If the actual daily gas consumption remains above 42 ETH/day throughout the period, User A will realize a profit.
How to Get Started
Base Gas Market offers a unique way for users to gain exposure to Base’s fundamental growth. Unlike investing in Base’s governance token, this market allows users to directly speculate on the ecosystem’s usage and activity levels by trading total gas consumption. More users and higher activity translate to increased gas fees. Through this mechanism, users can invest based on Base’s gas usage without relying solely on token price movements. Additionally, participants can use the market to hedge against gas fee volatility, mitigating risks associated with unpredictable gas prices.
Several external factors may influence the gas market:
- Base might increase the Gas Limit, potentially leading to lower gas prices.
- Base batches transactions to Ethereum L1 for settlement; changes in Blob base fees could affect L1 settlement costs.
- Rent variations within the OP Superchain might also impact Base’s gas pricing.
Step-by-Step Participation Guide
- Formulate a Prediction: Based on your analysis of Base gas consumption trends, decide whether to take a bullish (long) or bearish (short) position.
- Select a Timeframe: Choose a market pool that corresponds to your desired participation period.
- Pay the Margin: Deposit the required initial margin to enter the market pool and begin trading.
- Wait for Settlement: At the end of the pool’s cycle, rewards (in wETH) are distributed based on the actual change in total gas consumption. (Refer to the official documentation for detailed formulas.)
Beyond the Base gas fee market, Alkimiya also offers a Bitcoin transaction fee market, enabling users to hedge against volatility in Bitcoin network gas fees. The protocol has introduced Bitcoin Fee Rate Runes (BTC•FEERATE•RUNES), synthetic assets (runes) pegged directly to Bitcoin transaction fees. When transaction fees rise, the value of these runes increases, allowing users to buy or sell them for hedging or speculation. Additionally, runes can be redeemed for Bitcoin by paying a nominal fee.
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Frequently Asked Questions
What is Base Gas Market?
Base Gas Market is a decentralized platform on the Base network that allows users to trade on the future volatility of gas fees. By taking long or short positions, participants can speculate on changes in gas consumption or hedge against operational cost risks.
How are profits and losses calculated?
Gains and losses are determined by the difference between the predicted gas fee level at entry and the actual average gas consumption during the pool’s timeframe. The settlement occurs at the end of the period, with rewards distributed in wETH.
What are the risks involved?
As with any speculative market, participants risk losing their margin if their predictions are incorrect. Factors like network upgrades, changes in L1 settlement costs, and broader market conditions can impact gas fees unpredictably.
Can I exit a position before the pool ends?
No, exits and settlements only occur at the end of the predefined timeframe. Users must commit to the entire duration of the pool upon entry.
Is this available on other networks?
Yes, Alkimiya also provides similar markets for Bitcoin, allowing users to trade on Bitcoin transaction fee volatility using synthetic assets called runes.
Do I need deep technical knowledge to participate?
While understanding gas fees and blockchain basics is helpful, the platform is designed to be accessible. Users should, however, conduct thorough research and understand the risks before investing.
By participating in gas fee markets, users can leverage their insights into network activity to potentially earn returns or protect against cost fluctuations. Always ensure you are using reputable platforms and stay informed about market developments.