How to earn wETH on Base by trading Gas fees?

Author: 0XNATALIE

Since the beginning of this year, the community has started to discuss topics related to Gas fee derivatives. In June, Finn, a researcher at Nethermind, proposed a model for pricing Ethereum’s base fee options, which has attracted widespread attention from the community regarding Gas fee derivatives. This financial instrument provides new ways for participants in the Ethereum ecosystem to deal with the uncertainty of Gas fee fluctuations, not only helping users hedge against the volatility of transaction costs, but also bringing new speculative opportunities.

Base Gas Market: Betting on the future fluctuation of Gas fees

Recently, Alkimiya has built a financial market on Base: the Base Gas Market (not yet officially launched), which allows users to indirectly participate in the changes of the network economy by trading the gas fees of the Base network. Alkimiya is a protocol that allows trading of blockchain space resources (such as transaction fees), helps users hedge against fee fluctuations, and provides more speculative opportunities.

In the Alkimiya Base Gas Market, users can bet on the increase or decrease of the total gas cost of Base by longing (LONG) or shorting (SHORT). If a user believes that the income of Base will increase in the future, they can bet on the increase in gas consumption by longing; if they think the income will decrease, they can short. Since these costs are collected by Base’s sequencer, gas consumption actually reflects the usage and income of Base. Therefore, this kind of transaction is essentially speculation on the future development trend of the Base ecosystem.

In this market, each pool corresponds to a time period, and the pool is composed of all long and short positions within the same time period. All users participating in this time period will gather in the same pool. Users can enter and exit the pool at any time, and settlement will occur at the end of the time period, when rewards or losses for users will be determined based on the change in total Gas consumption.

For example, suppose Xiao A sees that Base will have multiple airdrop events in the next two weeks, and predicts that these events will significantly increase the total Gas consumption of Base. So Xiao A decides to join a market pool from January 1st to January 15th (15 days in total). During this market cycle, the Gas cost is calculated based on the market, ranging between 20 ETH/Day and 60 ETH/Day (if exceeded, it will be limited to the maximum/minimum value). Xiao A chooses to enter at 42 ETH/Day, predicting that the Gas consumption will exceed 42 ETH/Day, and buys 1% of the Gas cost share of the entire market, meaning he needs to pay an initial margin: (42-20)151% = 3.3w ETH. If the actual daily Gas consumption value always exceeds 42 ETH/Day, Xiao A will profit.

How to participate?

Base Gas Market provides users with a way to participate in the fundamental growth of Base. Unlike investing in Base governance tokens, users can directly bet on the usage and activity level of the Base ecosystem by trading total Gas consumption. More users and higher activity levels mean more Gas fees. In this way, users can invest based on the usage of Base Gas without relying on token price fluctuations. In addition, users can also use this market to hedge against fluctuations in Gas fees, avoiding the risks associated with unstable Gas prices.

External factors that may affect the Gas market include: Base may increase the Gas Limit, resulting in a decrease in Gas prices; Base needs to batch process transactions for settlement on Ethereum L1. As Blobs adjust (such as an increase in Blob base fees), the settlement cost of L1 may change; Changes in OP Superchain’s rental fees may also affect the Gas prices of Base, etc.

Process for ordinary users:

According to your own forecast of Base Gas consumption, choose to take a long (bullish) or short (bearish) position.

Select the time period to participate and choose the corresponding market pool.

Pay the corresponding margin and enter the market pool to start trading.

Wait for the end of the pool cycle and claim rewards (wETH) based on the actual total gas consumption changes. (See this document for specific calculation formula)

In addition to the transaction fee market on Base, Alkimiya also provides a Bitcoin transaction fee market to help users hedge against fluctuations in Bitcoin network Gas. And launched the Bitcoin transaction fee rate rune (BTC•FEERATE•RUNES), a synthetic asset (rune) directly linked to Bitcoin transaction fees. When transaction fees increase, the value of this rune will also rise, and users can buy and sell runes on the market for hedging or speculation. And it is possible to pay a certain fee to redeem the rune for Bitcoin.