Gas 2.0: Structuring Blockspace to Unlock new Possibilities with Order Execution

Transcript

All right, good morning and uh thank you for coming. I know it's a little bit early here on uh Wednesday here in Khan. Um, my name is Kevin, founder of uh, ETHGAS. And, uh, today I'm going to talk a little bit about the future of Ethereum from a a user experience perspective. Um, you know, often the community is focused on a lot of the uh, I'd call like a developer tooling and the developer user experience. Um, but what we're talking about today is really about enhancing the the end user experience um, after the after the wallet. But uh I'll get into some of those details. So as I said, yeah, I'm Kevin, founder of ETHGAS. Uh for

background, I have uh trifi background. I led uh financial engineering at Morgan Stanley for a number of years. Left, started a tech company with my wife and then um crypto was just calling me to come back into kind of like uh fintech, I guess you can call it, or or web 3. Uh so the northstar that we're driven by is something which you know I think all of us would like to achieve um at some point in the future you know um to some extent Ethereum is a an incredibly diverse network but it is also very slow and so to the extent that we could make it more uh real time in nature um would be wonderful and secondly uh to the extent that we could

you know eliminate you know broadly speaking the gas experience that would make it much more easier for kind of like your your especially your retail type of user experience. And so I'll talk about those two today um and talk about how we we basically power these from happening. Now gas is the economic fabric that binds blockchains together. It sits in between kind of the the two counterparties effectively the the validators on one side of the equation who are uh you know providing that block space or who are proposing that block space and on the other side it is the end users. And so on the enduser side you have um you know retail you have uh institutional you have searchers you have uh rollups oracles

and so forth but gas is this like uh competitive environment where everyone competes for these scarce resources in a ondemand basis or what I call like a spot market and so uh this market it doesn't really have much structure to it and our thesis is that if you can provide structure to this market you can achieve these huge unlocks for the broader ecosystem. And so uh the gas market as most of us know we think of it in terms of like guay the gas price goes up and down and there are broadly two components to gas prices. One is the base fee which we're you know more familiar with and then there's a priority fees and um

I'll get into a bit more detail here. the base fees, you know, they move a little bit, but um they are one of the the single most volatile instruments anywhere across crypto. And so, you know, ETH as an asset in terms of V, it might trade at like 75% V or you know, Bitcoin might be at like 60 62%. Uh but as you can see here, the base fees exhibit around a 2,000% annualized V. uh in the sense that they are able to potentially go up about 12 and a half% every 12 seconds. And so when you kind of analyze that and look at the uh the the standard deviation, the volatility of it, it's quite volatile, but not in comparison to the priority fees. The priority fees

could go from like zero to extreme amounts. And so it actually doesn't make sense to measure these markets from a VA perspective because they're just um they're too volatile. Um but it's basically like taming and providing a structure behind these markets which is what we're looking at today. And so on the left side we'll talk about the uh priority fees on top and how we work to uh again provide some structure here so that we can achieve a real-time experience on Ethereum. and separately the ga uh the base fees on the left um we'll look at how um if we can kind of tame or manage the base fees we'll end up with like a somewhat gasless experience on Ethereum and again powered by ETH gas so the

current block building process uh it's called you know uh PBS proposal builder separation there's um a common piece of software called MEV boost that many of the validators run um to to build blocks um we call this a spot bought auction. And the way this process works for those who um who may not understand is that you basically have users uh any of those types of users I spoke about earlier. And they're basically submitting their transactions, you know, if they're retail, you're submitting it through your your wallet. Um but these transactions would then go to a mix of block builders. And they may not go to all of them. They'll just go to some.

And to the the average user, you don't really choose the block builder specifically that you want to uh take your transactions to. But block builders, for example, Titan Builder, Beaver, the Flashbots, which you may be uh more familiar with, uh they'll basically create these blocks um and then ultimately these relays would then help to propagate these blocks uh through the peer-to-peer network and ultimately a validator would essentially like propose a block. Um but what happens in this process is that you know your wallet or um if you're trading on telegram for example with some of the telegram bots your transactions might go to one builder someone else's transactions might go to another builder

but ultimately the validator can only choose one block at the end of the day. Okay. So, are they going to choose builder one's blocks or builder two block? And so, you have this fragmentation over exactly which um which orders or which blocks will fundamentally be proposed in that slot. And so, um this fragmentation leads to uh basically like uh less than optimal returns for the validator. And so to the extent that we can kind of unify some of this order flow into the block then it creates a more uh certain experience for end users as well as it uh maximizes the value to the the the validator. So given the uncertainty in here uh we basically take this from another perspective. Um we we're looking at blockbased futures.

So what we've done is we've gone out to the validators. there's um you know just over a million validators with uh 32 ETH and that that may change now but um basically these validators can sell the block space in advance and so what you can do is uh you can pre- buy allocation in this block space and this is not too dissimilar from just like buying gas for your car right instead of kind of like using gas on demand as a car you know you you buy a big chunk of it put it in a gas tank and so um in this case you can kind of reserve gas uh in advance.

Now, let me switch across to a demo here. Okay, so this is our our test net, but it shows a more kind of a vibrant market. And so, what happens on the right side is you have uh what's called this look ahead window. So, within the next 64 blocks, slots or uh two epochs, it's about 12.8 minutes. Within that window, there are validators who will sell their block space. So you can effectively buy the entire block and do something with it. Now with us as a an intermediary to this transaction, we have this block space available for anyone to buy. Now someone could buy the entire block or someone could just buy

like a part of a block. And when you aggregate, you know, everyone in this room, if we were to all buy portions of the block, I could sell some here, here, here, here, here. And I could do this in 3 millisecond latency. And what that does is I'm effectively giving you guys um as an intermediary, I'm giving you a real-time experience to put your transactions in the block. And so if you guys were all to send me your transactions at, you know, broadly the same timeish, I can basically order those based on time of arrival or whatever it might be. But then I can give you this preconfirmation to know that you will be guaranteed to be like in that specific slot. now being 50 slots in the future, you may not know what you want to do in 50 slots. But,

you know, as these blocks roll down to like the next slot, then I can provide that guarantee. And if um the validator doesn't uh put your block your transaction into the next slot, they get uh slashed or penalized and you guys get compensated much more to the effect than the the transaction value that you have. And so that's the general premise here that as an intermediary I can provide a real-time experience on the blockchain. Now for someone who buys the block, you have a few choices. Um again you can buy a little piece but um this is largely more an institutional market where people like to buy the entire block. So you buy this kind of empty barrel of gas. You can sell it back and forth just trade it like a financial instrument. Um

secondly you could actually just build the block. So because you kind of control that block, you can put all the transactions you want into that block as you like, but um you know maybe you can't really maximize the value of that block and so maybe you just want the top of the block you know you want to do some uh sex arbitrage in between you know the centralized exchanges and DeFi that's entirely up to you and the rest of the block you can basically delegate or sell off to the conventional block builders or there's a fourth case where you can do nothing with a block if that's what you wanted to do that's fine. you pay for a block. There's some use cases, but uh we'll leave that for another time. So, um that's that's the general experience on the uh on the exchange.

Um now, switching gears now. So, so that was the the real-time experience and now we'll look at kind of the the gasless initiative that we have in play. And so, when we trade with a a DEX, for example, uh actually no, let's let's take a step back here. when you buy a coffee, you don't pay, you know, $5 plus some variable amount of electricity cost, you know, for that given day, right? And so, you know, we're not accustomed to that experience in the real world, and hopefully we can get to that point in the the dig the digital world where we're not paying this variable amount.

And so, the broader initiative is to take uh what is conventionally a fixed, you know, transaction fee. Maybe it's a it's a DEX or it's a carry if it's like a lending type of protocol. um taking this fixed plus variable fee and converting it into just fixed fees. So that that's the broader goal. Um but how do we get there? And so we're basically working with um among the top 20 protocols uh I'd say 40% of them so far. Uh we're launching this initiative quite soon. Basically, they're going to rebate your gas. And what's going to happen is that I'm going to go to protocol X and say, "Your users are spending uh $50,000 in gas." That protocol is going to rebate

that gas back to us as an intermediary. This is a once a month process. It's not on a on demand. They'll rebate that amount to us uh once a month as will many other protocols. And then from the end user experience, you can basically come to us and claim that gas back from multiple protocols but in a single transaction. So it's a very gas efficient way to basically rebate the gas uh back to the end user because at least currently it's quite expensive to do so via account abstraction and some of these other um on demand techniques. So uh yeah, we're we're about to kick that off shortly and um oh maybe I can actually show you a little bit here.

Um so if you were a protocol and you wanted to participate in this for example u we have this page here um I can share a link at the end but basically we help you to kind of estimate like what is that gas spend and do you want to rebate all of the functions that people might do maybe you're a um lending protocol for example you want to only rebate um actions which add TVL versus removing TVL so you basically come From here you'd um add a contract, put your contract address in and it'll pull up some information. Um but in the essence of time I'll just switch to the next tab here. So this is um this is Etherfy actually. Now it basically breaks the gas spend by the by

function sorry I guess by by contract by function um by the number of users transactions and it tells you that gas spend. And then as a protocol admin effectively you can say well I only want to rebate um you know 50% of this function 100% of that function and um then boom you basically just save it and then uh to start it's basically a manual process in between ourselves and these other protocols. The goal is to iron out the right user experience for this and then put this into a trustless process perhaps with um zero knowledge proofs.

And so that's the admin or the protocol side of the equation. And this here would be the enduser side of the equation. And so in this case here, this would be like a whale. Clearly, they've spent a million dollars on gas. But um they connect their wallet and they'd simply just claim back the gas fees accordingly from uh each protocol. And so with this process then um basically as a as a anyone using a protocol we're basically socializing that gas spend. So at the time of purchase, you don't need to think like well what is the base fee? Is it too high? Is it too low? Um you can basically just go ahead with confidence and uh know that that gas fee is not

kind of directly attributed to your specific transaction, but you'll get you'll get compensated accordingly. And so this enables us to uh as I showed in the earlier slide, we can basically go back to the protocol and they can then now say well our users um this is their behavior. we can now basically bake the cost of these transactions into the transaction fee and just have a fixed transaction fee going forward. So again, the goal is to uh remove the uncertainty and the variability of gas fees and um just make it kind of baked into the protocol itself. Okay.

Whoops. Okay. So, just kind of wrapping up here. Um, I guess I'd want to leave you with a well, three words, which is, you know, believe in something on on our side. Our belief is that we can make Ethereum real time and, uh, today we're doing it. Um, about 1% of the network is now able to operate on a real-time basis and we'll be working with protocols to enhance that user experience where a price could update in real time on Ethereum. Um, secondly, there's the gasless experience. So, if that's something you feel that we need as a community, let's talk.

And finally, uh, as part of our, um, incentive, you know, we're putting $30 million towards this to, um, either validators who like to join us and provide the block space to block builders, traders, um, or separately to protocols that want to join us on this gasless experience as well. And so with that, thank you for uh hearing me out this uh early morning uh in Khan. That's where you can reach us. Thank you. [Applause] And I guess I'll take questions if we have a few minutes. Yeah. Thanks. Very interesting. Uh I had two questions. One on the validator side. How does the You mentioned that they get slashed if they

don't commit to the the the Well, if they don't commit to Yes. Well, if they don't carry out what they committed to. Yeah. Um how does that work um with ETH gas? And then the other question or you want me to hold it? Oh, no. Uh I can I can take it. The first one is like how does the slashing work? Yeah. Yes. Yeah. Yeah. Or the state I'll ask that one first. So basically the validators post some amount of collateral. It could be zero or it could be one to 10 ETH. It's kind of variable and we approach it from a market based perspective. Ideally the more collateral they post the more that traders should be willing to pay because they have they have more comfort in some sense. Um the slashing mechanism is handled offchain currently. Um but there's mechanisms to get it onchain and

it's only because we're starting with this low latency experience and we eventually want to uh it's the highest kind of driver of demand for this. Um but yeah so the slashing happens offchain but uh we'll be moving it onchain. There's a broader initiative uh called fabric which is kind of spearheading this and creating kind of like a a community- based approach to um unifying the endpoints. And the second question, yeah, thanks. Um, second question was you said gas uh gasless, but it's not really gasless, right? It's correct. They pay gas and then they initiative is back again.

Well, we're trying to mimic more the the real world where gas is like an industrial input. So, you know, like we think of gas from that industrial kind of production part, but from the the end user experience, then we just kind of don't want them to think about gas, but they know it's there. Yeah. So, we're not actually removing gas itself. It's just we're mo we're moving it maybe one step further into the background. Okay. Do you see a future where you're going to be actually removing it from the user's experience entirely? Uh that's up to the wallets. Yeah. Yeah. Well, it's it's a function of the wallets and kind of that end touch point. And so, um either through account abstraction or future versions of account abstraction as a community, I think we'll get there, but we're not there quite yet. Um, so

this is an attempt to kind of like jump start that process and kind of put pressure on the wallets and the and the dev community to kind of figure this out from that last touch point. Yeah, we're providing the financial infrastructure to uh to do so. Anyone has a question? All righty. Thank you folks. [Applause]