What is the reason for the sharp drop in Ethereum handling fees?

Many friends should have noticed that compared with the gradually rising or even abnormal on-chain handling fees since the DeFi boom last year, the handling fees (Gwei) on the Ethereum chain have dropped significantly in the past two weeks. - Between 20Gwei, even the extremely fast confirmation is less than 20 Gwei (Gasnow data on June 8).

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01 After the madness, gradually return to low handling fees

You must know that at the beginning of January this year, only half a year ago, the handling fee has been rising all the way, with the highest exceeding 600Gwei, and three digits have become the norm, and even the lowest in the future will be around 50Gwei. (1 ETH = 10^9 Gwei)

The most intuitive thing is that at that time, the average income of each block of Ethereum was about 8ETH (some block income even exceeded 10ETH), while the system block reward was 2ETH, and the remaining 6ETH was fee income, that is, the fee income exceeded 10ETH. The block reward is 3 times, which shows the active transactions on the chain and the congestion of the network.

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Average Gas Price from 06.02-06.08

If behind it is the diversion factor of competing public chains such as BSC,That seems to be unable to explain that the "network congestion" situation of Ethereum has not been significantly alleviated when the BSC ecology was booming two months ago, so this is even a bit of a feeling that the result is the cause - to some extent it is the Ethereum network. Congestion indirectly contributed to the rise of competitive public chains.

Is that a relief for Layer 2 rookies like Polygon?It does not seem to be the main reason. Taking Polygon as an example, it has indeed developed rapidly in terms of volume. Now it has become the most competitive expansion solution of Ethereum with a TPS of 65,000 and a transaction fee of 0.00012, attracting a large number of Ethereum users. migrate.

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(Ethereum Daily Transaction Chart)

In fact, if we want to delve deeper into the reasons for the downward trend of transaction fees, and the core driving force behind the previous abnormally high prices, we may need to understand a concept that has gradually attracted more and more attention from friends, that is, MEV.

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02 Malignant MEV, the key factor behind abnormally high service fees that cannot be ignored

Before that, it is necessary for us to review the basics of transaction packaging on the Ethereum network. As we all know, a transaction fee in the Ethereum network = Gas (Used) * Gas ​​Price (Gwei), where:

Gas is the total amount of Gas consumed by the transaction. Generally, the amount of Gas consumed by each transaction is fixed; the handling fee (Gwei) is the price we are willing to pay for each unit of Gas in the transaction, so it is a direct The key to determining whether miners are willing to package quickly;

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(Ethereum average fee limit chart)

It can be clearly seen that the key to having room for manipulation lies in the "problem of transaction ordering", especially with the substantial increase in activities on the Ethereum chain caused by DeFi, the room for manipulation is also increasing.

To give the most obvious example, a user made a large transaction on Uniswap, resulting in a large slippage and creating an arbitrage opportunity of $10,000. Under the above circumstances, friends who are always paying attention to on-chain arbitrage opportunities will undoubtedly submit a sum immediately to capture it after noticing similar opportunities.

At this time, it is actually the competition of robots. Countless robots on the chain will notice this arbitrage opportunity and offer higher transaction fee quotations, starting a bidding war for arbitrage rights. This kind of auction is called "priority GAS Auction" ("Priority Gas Auctions", referred to as PGA).

At this time, it depends on which robot moves faster. It is essentially an open game process. Any robot that aims to find arbitrage opportunities on the chain will compete based on its ability. As "players" on the same track, it is relatively fair. of.

The potential profit of $10,000 that everyone is competing for is the MEV, and the difference between the auction settlement price and the total MEV is the winner’s profit (for example, if an arbitrage robot pays the miner a bidding fee of $7,000, the remaining $3,000 is Leave it to this arbitrageur).

In short, MEV exists objectively and cannot be avoided (there is a view that "there will always be a certain amount of MEV in a distributed system"), and to some extent, arbitrage robots will arbitrage the market price to be equal to the real price, making DeFi The market is more efficient without harming the interests of the original trader, which can be called a benign MEV transaction.

But the crux of the problem is that although MEV itself is neutral, the "malignant" MEV behind the promotion of interests cannot be avoided:

• Still the above-mentioned $10,000 example, everyone should not forget the possibility of the "referee" personally ending the game - if the miner "does not speak martial arts", copy and review the transaction of the arbitrageur, so as to use his own packaging to capture Taking advantage of this arbitrage opportunity has intensified the competition among robots in vain;

• Or for the same transaction, the arbitrage robot will identify the user's transaction before executing it, and "sandwich" it between its own buying and selling orders, artificially raising the execution price, and then the robot will sell it immediately to obtain profits;

• There was even a spectacle of involution among robots, which led to the MEV competition market becoming the real Ethereum DeFi "dark forest" of the robots who ran away - a strategic competition without any emotion between robots cut with each other;

These vicious MEVs have attracted many stakeholders to cut the cake, causing the Gas Price to continue to rise, and it has become a ruthless bidding game, which will undoubtedlyIt greatly reduces the user experience, hinders the healthy development of the network, and has opened up and formed a huge profit redistribution market:

According to the latest data from Flashbots (as of June 8, 2021), in the one and a half years since January 2020, the MEV of the Ethereum network has reached at least 749.7 million US dollars, of which the most recent 30 days alone have reached as high as $244.7 million.

As long as the MEV is large enough, early runners will be willing to pay gas fees hundreds of times higher than normal transactions through vicious competition. Congestion is also a waste of block resources.

In fact, to a certain extent, the author thinks that the benefits obtained from the sorting ability are another form of "insider information advantage" when compared to the traditional financial market (of course, each depends on its own ability)。

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03 Strengthen order, the rise of anti-MEV behind Flashbots

Flashbots is a neutral research and development organization that aims to reduce the negative external impact and risk of MEV on Ethereum. It is jointly established by a number of well-known industry figures and more than 20 Ethereum community researchers and white hat engineers with the support of the Paradigm Fund. initiated.

It advocates a license-free, transparent, and fair ecosystem for MEV value mining to ensure the ideal state of Ethereum. PGA bots) for attacks, resulting in the shutdown of a large number of such bots.

Specifically, its solution to alleviate the MEV crisis is to strengthen the order of the transaction sequencing problem, which is divided into three parts: "lighting the dark forest", "democratizing value mining" and "distributing profits":

• "Lighting up the Dark Forest" In order to quantify the impact of MEV, Flashbots created the MEV data collection and browsing tool "MEV-Inspect" open source project of the Ethereum block, and created a series of MEV indicators (the data of Flashbots above is the tool);

• "Democratize Value Mining" is an optimized "MEV-Geth" based on the go-ethereum client code, ensuring equality between small and large players by democratizing MEV extraction without changing the decentralization of Ethereum obtain a fair chance of competition;

• "Profit distribution" is because MEV involves the entire Ethereum ecosystem, including miners, users, DeFi developers, etc., and most importantly, Ethereum users, but MEV extraction currently disproportionately benefits miners and other groups, so as MEV The continuous expansion of extraction scale requires value redistribution to users and system stability;

To understand it simply, it isFlashbots communicates directly with the sorting by enabling a sealed auction mechanism for the block space, slowing down the network congestion and transaction fee war on Ethereum caused by the sorting frontrunners。

Moreover, a set of sorting priority bidding mechanism established on the basis of the current "priority gas auction" mechanism, on the premise that users who need priority sorting can avoid leaking their transaction strategies in advance, use Flashbots to sort tip bidding, and miners only need to run MEV-Geth can get additional income from MEV.

According to the memories of Flashbots researcher and developer Stephane Gosselin, at the beginning of Flashbots’ launch, the Gwei on the chain was at a high level of 500+. After the subsequent launch, Flashbots’ node solution MEV-Geth for Ethereum MEV soon exceeded 50% of the computing power support rate and attracted widespread attention, and greatly eased the spread of vicious MEV transactions.

In a word, Flashbots realizes the identification of MEVs that may exist on the Ethereum network at the code level.is democratizing access to MEV by providing developers in the ecosystem with publicly accessible MEV infrastructure and mining pool support。

In addition to the standard bearer Flashbots, the current MEV concept ecology is becoming more and more prosperous as a whole. Anti-MEV related projects such as mistX, cowswap, KeeperDAO, ArcherDAO, Automata, etc. have become a vibrant and vigorous track in the Ethereum ecosystem.

This is the charm of Ethereum, the DeFi forest. It is full of "cold" established rules, and at the same time, it can also derive many "warm" new things, so as to self-generate more and more novel but mutually related A small ecology that is inextricably linked, with infinite possibilities.