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Gas fees also have futures?

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Explain in detail the GAS fee futures token uGAS.

Original title: "Introduction | uGAS——Gas Futures Token"

Original source: Ethereum Enthusiast

Background< /h3>

Over the past few weeks uLABS has taken inspiration from community members (thanks Ali Atiia) and developed With the help of the team, the UMA contract was deployed on the mainnet. Kevin, a former trader who helped design the UMA token and Sean, who has a background in tech consulting, built the UMA contract based on UMA's documentation. Now, uLABS has launched the uGAS token. If you want to know how to build your own ideas on UMA, you can follow their Medium articles in the next few weeks.

Why Gas?

The DeFi boom has driven up the price of Ethereum gas, which in turn has led to increased volatility and uncertainty in transaction costs. To solve this problem, uLABS’ synthetic Gas futures token (uGAS) adopts a solution that allows “users” and “providers” of gas to lock in their costs or benefits. uGAS tokens allow users to both hedge risk and act as a speculative tool on gas prices.

Existing contracts such as Gas Token and Chi Gas Token can partially solve this problem. However, these two contracts cannot be used purely for hedging or speculation, and may be too complicated for ordinary cryptocurrency users. UMA takes a radically different approach, drawing on the concept of a futures market that is already well established in the traditional financial industry. In terms of design and the way it works, uGAS tokens are similar to futures contracts on crude oil, gold, or the Fed Funds.

What is uGAS?

uGAS-JAN21 tokens will be based on the median gas price of all Ethereum transactions in January (actually 30 days) Count to settle. Through such a simple contract, market participants can lock the gas price at the median gas price (Gwei) for the entire month as long as they buy or sell the contract today. You can create and redeem these tokens on uGAS Station.

How do we use uGAS?

The best way to understand how uGAS works is of course an example.

Trader Alex

Alex is a A trader, who believes that the gas price of Ethereum will increase in January, decides to buy uGAS-JAN21 tokens. She connects her cryptography wallet to Uniswap and plans to use ETH to purchase 100 uGAS-JAN21 tokens.

The price shown on the UI is 1 uGAS-JAN21 = 0.070 ETH. In other words, Alex believes that the gas price in the future will exceed 70 Gwei. Specifically, each uGAS-JAN21 token represents 1,000,000 gas, and 1,000,000,000 GWei equals 1 Ether. Ignoring transaction costs, Alex needs to spend 7 ETH to purchase 100 uGAS-JAN21 tokens.

The price of uGAS-JAN21 token increased to 0.100 ETH due to the bullish expectation of Ethereum gas price (i.e., The gas price is 100 Gwei). Alex sold her 100 uGAS-JAN21 tokens for 10 ETH, earning 3 ETH (i.e. earning 0.03 ETH per token and 30 Gwei per unit of gas).

Farmer Brad

Brad is an active DeFi farmer, executes a lot of trades to manage his cryptocurrency portfolio. In early December, he saw uGAS-JAN21 tokens trading at 70 GWei/gas and wanted to lock in his gas price for January.

Brad has to do 10,000 simple transactions every month (each transaction consumes 21,000 gas), and the total consumption 210,000,000 gas (10,000 transactions x 21,000 gas/transaction).

Given that each uGAS token represents 1,000,000 gas, in order to fully hedge its gas consumption, Brad needs to purchase 210 uGAS-JAN21 tokens (210,000,000 gas / 1,000,000 gas).

Brad connected his cryptography wallet to Uniswap and found that 1 uGAS-JAN21 = 0.070 ETH (the gas price is 70 Gwei). If transaction costs are ignored, Brad needs to spend 14.7 ETH to purchase 210 uGAS-JAN21 tokens.

In January, Brad participated in DeFi liquidity mining as always, and consumed 210,000,000 by the end of January as expected gas. However, the average gas price he paid for all transactions in January was 105 Gwei, which is much higher than the gas price in early December.

Brad holds these 210 uGAS-JAN21 tokens until they are released on February 1, 2022 Day 00:00 UTC expires. 30 days before that date (almost all of January 2021), the median Ethereum gas price was 110 Gwei, so uGAS-JAN21 tokens end up at 110 Gwei/gas.

Brad can now use these uGAS-JAN21 tokens to redeem ETH at 0.110 ETH for a total of 23.1 ETH - Earned 8.4 ETH (i.e. earned 0.04 ETH per token and 40 Gwei per unit of gas). However, this 8.4 ETH is offset by the higher gas price Brad paid in January. The uGAS-JAN21 token actually acts as a hedge against the risk of rising ETH gas prices.

Miner Clare

Clare operates Ethereum mining mine business. When the transaction price of uGAS-JAN21 tokens is at 70 Gwei/gas, she believes that the gas price of Ethereum will drop in the next two months, and she wants to use uGAS-JAN21 tokens to hedge risks and protect its future earnings.

Clare packs 50,000 simple transactions per month (each transaction consumes 21,000 gas), and needs to consume a total of 1,050,000,000 gas gas (50,000 transactions x 21,000 gas).

Given that each uGAS token represents 1,000,000 gas, in order to fully hedge its mining earnings, Clare needs to mint and sell 1,050 uGAS-JAN21 tokens will be issued (1,050,000,000 gas / 1,000,000 gas per token).

Clare connects his crypto wallet to uGAS Station and selects the uGAS-JAN21 token. Click "Manage Position" and select "Create—Mint new synthetic tokens". Enter "1,050" under "Tokens (uGAS-JAN21)", and then click "MIN (minimum pledge amount)" under "Collateral (WETH)". Since the Global Collateral Ratio (GCR) is 2.5, the minimum stake amount is 183.75 WETH (2.5 x 1,050 tokens x 0.070 ETH per token). Finally, Clare clicks “Create” to mint 1,050 uGAS-DEC20 tokens while staking 183.75 WETH. Note that since uGAS-JAN21 tokens have a collateralization ratio of 1.25, Clare can take out excess collateral without fear of being liquidated.

Clare then connects her cryptography wallet to Uniswap and sells her holdings for 0.070 ETH 1,050 uGAS-JAN21 tokens (gas price is 70 Gwei), and get 73.5 ETH. Note that Clare currently has a total stake of 110.25 ETH (183.75 WETH pledged - 73.5 ETH received). Now, Clare can take out more collateral to improve capital efficiency, just make sure to maintain the collateralization ratio at 1.25.

Unfortunately, the gas price of Ethereum has increased, and the median gas price in the past 30 days (January) is 110 Gwei, so the settlement price of the uGAS-JAN21 token is 0.110. Clare lost 42 ETH (1,050 tokens x (0.070–0.110)). However, due to the increase in gas prices in January, Clare’s increased mining income more than offset her losses on uGAS-JAN21 tokens. Finally, uGAS tokens help Clare lock her mining earnings at a gas price of 70 Gwei, increasing the certainty of her earnings.

Price feed and pledge

Compared to tokens created through the EMP contract, uGAS tokens adopt a new way to monitor the pledge rate. Previous tokens used an independent price source to ensure uGAS tokens were fully staked. The uGAS token uses a unique backward-looking design, using the 30-day median gas price as an identifier. This design presents two major challenges. First, no independent price source can predict the median gas price for the next 30 days; second, a rolling 30-day median gas price introduces the risk of tokens being under-collateralized or under-supplied. We designed a special price identifier compliant with the UMIP 20 specification that allows uGAS to monitor the pledge rate using the 2-hour weighted average price (TWAP) of uGAS tokens. The uGAS token serves as the best expectation of the median gas price for settlement after 30 days, and the 2-hour TWAP is used to prevent price manipulation.

Developer mining and dApp mining

Aside from being a useful product for the Ethereum community, uLABS designed uGAS with another intention of showing how UMA's developer mining program can be used to reward product users and reward others Also involved in the build.

Developers do keep the UMA tokens they receive for themselves. However, uLABS has chosen to release these tokens to the community. In order to reward early early participants and provide liquidity, uLABS will reward all UMA tokens obtained to mint and provide uGAS-JAN21 tokens (and WETH) liquidity provider. Farmers who have already participated in UMA’s early liquidity mining plan, please note that this time the plan is different. In the original plan, farmers could mint or buy synthetic tokens simply by holding BPT tokens in the relevant liquidity pool. The lesson we've learned from this is that rewarding liquidity providers in this way affects transaction prices. According to uGAS’s mining plan, only liquidity providers who mint synthetic assets themselves will be rewarded.

The uGAS mining plan will increase the depth of liquidity, but will not affect the price of synthetic tokens. Given that uGAS tokens have natural buyers and sellers for hedging, we want to minimize price anomalies due to liquidity mining. And we believe this stricter reward distribution requirement may help. After the first two weeks, we will evaluate the behavior and liquidity of the token before proceeding with the subsequent mining plan. Ideally, uLABS wants to use all developer mining rewards to incentivize dApps and infrastructure that support uGAS. However, in the future we may allocate part of the rewards to liquidity providers and another part to developers who support uGAS. Ultimately, we want to transfer ownership of the project to all community members.

Summary

uGAS generation Coin not only allows traders to speculate, but also allows Ethereum users and miners to hedge against the risk of gas price fluctuations. We hope that the uGAS token will be well received by everyone, and if the feedback is good, we will create a series of similar tokens in the future. Whether your experience is good or bad, please give us feedback, let us continue to improve and perfect the product. We believe the uGAS token will help the Ethereum community better manage its transaction fees and reduce gas price volatility.

WARNING: uGAS tokens are experimental - users are advised to proceed with caution. While the EMP contract has been carefully audited by OpenZeppelin, the volatility price identifiers applied by the contract (e.g., Ethereum gas price) are novel and unpredictable in real-time markets. Please take a moment to learn about uGAS tokens first, you can ask questions on UMA’s Discord.