Understand uGAS in one article: Gas futures token
Editor's Note: This article comes fromEthereum enthusiasts (ID: ethfans), reprinted by Odaily with authorization.
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Editor's Note: This article comes from
Ethereum enthusiasts (ID: ethfans)
, reprinted by Odaily with authorization.
background
Over the past few weeks, uLABS has taken inspiration from community members (thanks Ali Atiia) and deployed the UMA contract on mainnet with little to no help from the UMA development team. Kevin, a former trader who helped design the UMA token and Sean, who has a background in technical consulting, built the UMA contract from 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 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 settled according to the median gas price of all Ethereum transactions in January (actually 30 days). With such a simple contract, market participants can lock in the gas price as 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?
How do we use uGAS?
TraderAlex
TraderAlex
Alex, a trader, believes that Ethereum's gas price will rise in January and 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 displayed 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.
Due to the bullish expectation of the Ethereum gas price, the price of the uGAS-JAN21 token increased to 0.100 ETH (ie, 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
Farmer Brad
Brad is an active DeFi farmer, executing many 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.ETHBrad performs 10,000 simple transactions per month (each transaction consumes 21,000 gas), and a total of 210,000,000 gas is consumed (10,000 transactions x 21,000 gas/transaction).
Brad connects his crypto wallet to Uniswap and finds that 1 uGAS-JAN21 = 0.070 ETH (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 usual, and consumed 210,000,000 gas by the end of January as expected. 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 expire on February 1, 2022 at 00:00 UTC. 30 days before that date (almost all of January 2021), the median Ethereum gas price was 110 Gwei, so uGAS-JAN21 tokens ended 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 - making 8.4 ETH (i.e. 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
The role of gas price rise risk.
Miner Clare
Miner Clare
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 (50,000 transactions x 21,000 gas).
Given that each uGAS token represents 1,000,000 gas, to fully hedge its mining earnings, Clare would need to mint and sell 1,050 uGAS-JAN21 tokens (1,050,000,000 gas / 1,000,000 gas per token).
Clare then connects her crypto wallet to Uniswap, sells her holdings of 1,050 uGAS-JAN21 tokens (gas price is 70 Gwei) for 0.070 ETH, and receives 73.5 ETH. Note that Clare currently has a total stake of 110.25 ETH (183.75 WETH as collateral - 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, Ethereum's gas price has risen, the median gas price over the past 30 days (January) is 110 Gwei, so the uGAS-JAN21 token settles at 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 mining income increased, which 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 Staking
Developer mining and dApp mining
Summarize
Developer mining and dApp mining
In addition to being a useful product for the Ethereum community, uLABS designed uGAS with the intention of showing how UMA's developer mining program can be used to reward product users and reward others for building it too.
