This Token Could Bridge the Incentive Gap Between Ethereum Miners and Ethereum Users
High gas fees have plagued Ethereum off and on for months, so much so that there has been a boom in funding and uptake around layer 2 solutions such as Polygon, Arbitrum and Optimism.
A new project is taking a different tack and hoping to foster better communication between two groups of Ethereum stakeholders whose incentives are often misaligned: miners and users.
The Ethereum Eagle project (EGL), launching on the last week Friday, is an effort to provide a signaling mechanism for the miners and community to strike the “right” balance between gas limits and block size.
“The idea for EGL comes from the fact that we constantly see, every six months on Twitter, people are ranting about the gas limit,” said bloXroute Head of Strategy and Operations Eleni Steinman. BloXroute, a blockchain scalability company that focuses on providing scaling without protocol changes, is developing the project.
In Ethereum, miners have the ability to determine block size, to a certain extent. Miners can change the block size of a subsequent block by 0.1%; so while there are small fluctuations back and forth in the gas limit over time, the general baseline is the gas limit set by the majority of the hash power. But Ethereum miners can change the gas limit in large movements as well.
Basically, larger blocks create lower gas fees but less profits for miners, while smaller blocks create higher gas fees and are more profitable.
Giving mining pools control over block size has caused incentives between miners and users to be decoupled, bloXroute contends.
“Lower gas limit (and higher gas fees) means more short-term income for miners, and adjusting the gas limit up generally translates to earning less, without clarity when the demand will make up for it,” the project wrote in a blog post laying out the EGL project in more detail, adding:
“A higher gas limit may push Ethereum to require more than the average consumer PC to run a node, preventing regular users from running their own node. This is an incentive and a ‘pricing’ problem, and it requires a solution to allow Ethereum to continue its growth safely.”
The boom in decentralized finance (DeFi), not to mention non-fungible tokens (NFTs), has contributed to high gas fees that can make transacting on Ethereum prohibitively expensive for many users.
What EGL does?
Steinman said the EGL solution has three parts.
First, anyone with Ethereum can participate in EGL by staking ETH.
The staked ETH is used to give value to EGL tokens, with EGL’s value increasing the more ETH that gets staked. There is a hard cap of 4 billion EGL.
For example, according to Steinman, if 10,000 ETH is staked and 750 million EGL is used to match, then 1 ETH equals 75,000 EGL. If it’s 20,000 ETH staked, then 1 ETH equals 37,500 EGL, implying a higher value.
EGL having value from the get-go is a key piece of the puzzle, since the token will be used to incentivize behavior among Ethereum miners.
“We’re not raising money for this. It’s purely for the Ethereum community,” said Steinman.
The second part is that people who hold EGL gets to vote every week on what they think is the right gas limit. A weighted average of those votes and numbers gets passed, and as miners mine blocks that match this gas limit they get rewarded in EGL.
“That allows the community to coordinate among themselves about what they think the right gas limit answer is,” said Steinman. “If you want to rant on Twitter and get people to vote with you, you actually need to have good research to have people put their money where your mouth is, but now you have a mechanism to get miners to follow what the community wants because we’re rewarding them in the EGL token.”
The third part here, according to bloXroute co-founder and CEO Uri Klarman, is that there is only a carrot, no stick. Miners are not penalized if they choose not to go with a suggested gas limit; they’re only rewarded for doing so.
It’s an incentive that had not existed previously, said Klarman. “Because the closer they follow the desired gas limit, the more EGLs they get.”