Volatility of GAS on Ethereum Before London Upgrade EIP-1559
London Hard Fork
The biggest news recently is the approval of EIP-1559 for inclusion in the London upgrade for the Ethereum blockchain.
The proposal in this EIP is to start with a base fee amount which is adjusted up and down by the protocol based on how congested the network is. When the network exceeds the target per-block gas usage, the base fee increases slightly and when capacity is below the target, it decreases slightly.
Implications
While this is expected to drive the cost of transactions down, and certain GAS tokens (GST2, CHI) have pulled back on this expectation; the ethereum blockchain is very big, and very busy. We are a very long way off from the activation of this fork, and the gas market could be very volatile in the time up to this proposed change actually being implemented. CHI is a direct proxy for ETH as well since burning it, returns the ETH consumed in creating the contract. Major moves in the value of ETH must also cause a move in the value of CHI, in USD.
Now we will consider another EIP:
EIP-3298: Removal of refunds
GasToken in particular will become valueless. DeFi arbitrage bots, which today frequently use either established GasToken schemes or a custom alternative to reduce on-chain costs, would benefit from rewriting their code to remove calls to these no-longer-functional gas storage mechanisms.
Note that EIP-3298 is still draft. If implemented, it would render CHI and GST2 tokens worthless.
The Chi gastoken (CHI) is an ERC20-standard token aimed to help reduce 1inch users’ transaction fees. Chi is pegged to the Ethereum network’s gas price.
Many exchange transactions use the reserve of CHI that is on hand to offset price moves when making trades. 1Inch is one such exchange.
The maximum minting limit is 140 Chi tokens, which, in turn, is explained by the block limit.
5,125,271 gas x 20 GWEI = 5125271*20*1e9/1e18 = 0.10250542 ETH
5,125,271 gas x 100 GWEI = 5125271*20*1e9/1e18 = 0.5125271 ETH
Playbook
If you are holding CHI or GST2, the recent pull back is an opportunity to add some additional tokens. The cost to mint (100 wei) a CHI token is $6 per token in batches of 140, with Ethereum at $1,800. Any renewed interest in NFTs, or price action around major DEX governance tokens (I’m looking at UNI, SUSHI, and 1INCH currently) will drive transaction costs back up on the ethereum network. Since 1Inch pulls the token from either the traders wallet or as part of a DEX swap on Uniswap, the demand is high and will sustain the value of CHI while gas prices are rallying.
The approval of EIP-1559 bought the community a brief opportunity, but until implemented the market will still be extremely volatile for GAS until the hard fork in July, if there is further discussion or postponement of this EIP, expect a renewed rally of interest in CHI and GST2.
If EIP-3298 is implemented, both of these tokens are worthless. But again, until the hard fork implements the proposal the volatility of the gas market can make use of these tokens.
See also:
GasToken: or how I learned to stop worrying and love gas price surges by Aodhgan Gleeson
Calculations on efficiencies of CHI: https://misc.zumzoom.dev/chi/
