Questioning the Necessity of Gas Futures: Does the Ethereum Ecosystem Really Need Them?

On-chain Gas Futures: Vitalik's Genius Idea or a False Proposition for Retail Investors?

Written by: KarenZ, Foresight News

In the Ethereum ecosystem, the volatility of Gas fees has always troubled developers and users.

To address this, Ethereum co-founder Vitalik Buterin proposed a thought-provoking solution: to build a trustless on-chain Gas futures market, using financial market mechanisms to resolve the uncertainty of future costs.

The Current Era of Low Gas Fees and an Uncertain Future

Although technical upgrades and a quiet on-chain market have made Ethereum Gas fees very cheap at present, community concerns have not dissipated. Vitalik pointed out this real contradiction.

Even though Gas fees are currently low, developers and institutions are still asking: "What will happen in two years?" When technologists respond with roadmaps—fees will remain low, BAL (Block-Level Access Lists), ePBS (Proposer-Builder Separation), and future ZK-EVM (Zero-Knowledge Ethereum Virtual Machine) will continue to increase the Gas limit.

However, pure technical promises can sometimes seem weak. After all, the history of network congestion is still fresh in memory.

For project teams, low fees now do not mean controllable costs in the future. For large institutions, the uncertainty of Gas price volatility often becomes a major obstacle to Ethereum adoption.

The Three Core Values of an On-chain Gas Futures Market

The on-chain Gas futures market proposed by Vitalik is essentially about turning decentralized market expectations for Gas fees into tradable standardized contracts. This mechanism has several core values:

Transparent Expectation Signals

The price in the futures market is itself a summary of information. If market participants generally believe that future Gas fees will remain low, the futures price will reflect this belief. Conversely, if not, because it is backed by real capital allocation decisions.

Risk Hedging Tools

For different ecosystem roles, the Gas futures market allows developers to tailor risk management solutions:

• DApp: For popular protocols, if planning to launch high-concurrency activities such as deposits, NFT minting, or airdrop claims at a specific time, the project team can buy futures in advance to lock in costs, and can enhance the event experience by "subsidizing users".
• Layer2 Operators: L2s need to batch and upload data to the Ethereum mainnet, which is one of their operating costs. L2 operators can buy enough Gas futures during periods of low Gas to hedge against the volatility of on-chain data costs, stabilizing the L2 service fee pricing model;
• Account Abstraction Service Providers: By locking in Gas costs for the coming year, the "Gas-free" business model can shift from a subsidy game to sustainable operations, improving user retention;
• Liquidation bots can use futures contracts to hedge against high Gas during extreme market conditions, ensuring timely execution of liquidations during market volatility.

Boosting Institutional Confidence

Large institutions and enterprises generally dislike unpredictable operating costs. The Gas futures market will provide them with tools similar to commodity hedging in traditional finance, making them more willing to migrate core businesses to Ethereum and further attracting institutional capital inflows.

Pioneers in Gas Financialization

Although the concept of Gas futures is still in its early stages, several projects have already begun practical exploration.

ETHGAS is building a foundational financial market for the Ethereum blockspace market, and is already live on the mainnet and available for testing on the Hoodi network. In terms of Gas cashback and hedging, ETHGAS allows DApps to hedge Gas to lock in a fixed Gas cost, turning volatile costs into predictable operating expenses. Then, users transact on DApps partnered with ETHGAS and pay Gas fees as usual, but in reality, the DApp covers this cost for the user in the background. Afterwards, users can access the ETHGas dashboard to view and claim all cashback. In addition, ETHGAS will launch Base Fee futures, allowing traders to go long or short on the Base Fee.

Hedgehog is a prediction market focused on on-chain metrics, supporting predictions for Base Fee, Priority Fee, funding rates, blob fees, BTC transaction volatility, and more. In March 2024, Hedgehog completed a $1.5 million pre-seed round, with investments from Marshland Capital, Tenzor Capital, Prometeus Ventures, 3Commas Capital, Nothing Research, and angel investors such as Lido Finance co-founder Vasiliy Shapovalov, Yearn Finance's anonymous developer Banteg, and Gearbox's anonymous core contributor ivangbi. Currently, Hedgehog is still in the waiting list stage.

Daniele Sesta's DeFAI project Hey Anon has announced that it will launch a prediction market called Pandora this month, where anyone can predict events, including Gas fees. Additionally, Pandora can be seen as a launchpad, where users can fork Pandora and create a prediction market specifically for Gas prices on mainnet, sidechains, L2s, etc.

The Gap Between Ideal and Reality: Five Major Challenges for the Gas Futures Market

Although the prospects may be enticing, the Gas futures market still faces a series of real-world obstacles that may determine whether it can move from concept to implementation:

A "False Demand" for Retail Investors: The on-chain Gas futures market proposed by Vitalik faces a fundamental question: who will actually use it? Most ordinary users will not actively hedge Gas costs. Outside of periods of severe network congestion, their transaction frequency is not high enough to create hedging demand, and they are usually tolerant of Gas fee changes for individual transactions.

Market Liquidity Issues: The effectiveness of a futures market depends on sufficient liquidity, but Gas futures face a "chicken or egg" dilemma: without effective pricing, participants are not attracted, and without participants, effective pricing cannot form. This could lead to a deadlock.

Market Manipulation Risks: This is one of the most threatening challenges. On-chain, it is relatively easy to "manufacture" congestion. If a whale establishes a large bullish position on Gas fees in the futures market, they could profit by initiating spam transactions to clog the network. This intersection of reality and financial market pricing makes the cost of market manipulation very low and the profit potential very high.

Limitations of Prediction: Gas fees depend on network usage, progress of technical upgrades, potential black swan events, launch timings of popular projects, and other variables. Compared to agricultural futures, these variables are even more uncertain and harder to predict.

Inverted Information Asymmetry: If some participants possess insider information (such as a major project about to launch or open deposits), they can use this information to profit in the futures market. This actually encourages arbitrage by those with information advantages over those with disadvantages, rather than solving the problem.

Conclusion

Vitalik's on-chain Gas futures market represents an elegant economic mindset: while the entire ecosystem is celebrating low Gas fees, he is already thinking about how to solidify this expectation through market mechanisms.

However, the real-world challenges cannot be ignored: the authenticity of market demand, liquidity, prevention of manipulation risks, and the negative effects that information asymmetry may bring—none of these are small issues.

This idea reflects a typical mindset in the crypto space—trying to solve problems that should be addressed by technological progress with financial engineering. But in most cases, hardcore technological progress is the only answer.