As the Ethereum blockchain became more and more utilized, we saw the average transaction cost rise nearly 10x its value from 4 months ago. This is not something new that users are experiencing for the first time. In the summer of 2020, Fast Gas prices were nearing double of what the stand now.
Many have voiced their disappointment with transaction fees on the ethereum chain as of recently and some memes can actually summarize the experience such as today with Fast Gas prices being around 400 GWEI.
However, Gas markets are designed to be a free market system and eventually this rate does decrease as demand for blockspace also decreases. Now it begs the question, is this volatile enough to play out well on a chart? Or maybe does a market opportunity exist for hedging gwei directly when activity is high yet no positions seem clear.
Lets dive a bit deeper on the how a trader can see rising and falling gas prices, and what it may mean for future positions he may want to take.
Above is a chart demonstrating the volatile fees that currently plague Ethereum. Many solutions have been presented to help alleviate that problem such as sidechains or L2 solutions however they still go heavily under utilized. As a trader you are left with a couple ways to take advantage of the situation.
You can short Ethereum as a bet against the long term ( or even short term ) feasibility of the project. Someone may do this because they dont feel ETH will scale in time compared to other solutions like Polka, a trader may also take this route because they feel the sour attitude towards fees may turn away trading activity or interest on Ethereum.
A user can long scaling solution projects or alternative blockchains like previously mentioned. Like before, the reasons may vary here but likely may be attributed to new interest in these solutions provided by other projects.
A more dynamic and admittedly fun solution is directly shorting and longing gas prices priced in GWEI/ETH.
A trader would take this position not only to directly gain exposure to the underlying market, but also have more solid grounds for their entry on either side. Believe the ETH network will solve scaling, has less on-chain activity, or even have L2 solutions be more utilized? Someone with these reasons can take a short position on fast gas prices.
Alternatively, if you believe on-chain activity will increase through markets like uniswap, snowball into oblivion, or even see a potential increase in volatility for the ETH/USD price ( which has shown to increase dex activity therefore gas prices climbing as users try to outbid each other ). This thought process can have a trader take a long position on fast gas prices.
Enter Efficiency markets
Traders are now given the ability to trade the efficiency of blockchain systems and other exotic concepts on UniDex. Being able to directly take a position on the average gwei paid for a transaction opens up a whole new sector for trading. By heading over to our trading terminal and selecting gas fee pair, users can take bull or bear positions on GWEI paid by users.
These bull and bear positions represent shorts and longs for the trading pair selected ( In this post were covering ETH gas fees ). Lets take a bear position as an example given you believe gas fees will decrease. A trader would buy into bear position that's bought at a constant 1:1 ratio and is minted a bear token. As gas prices fluctuate your holdings will rebase with the leverage your position is operating on in which users can redeem at a 1:1 ratio.
Lets say gas prices are 100 GWEI and you have entered with 1 ETH into a bear position. Trader A is now minted 1 BEAR GAS token and is awaiting for his position to play out. Assuming gas prices fall to 90 GWEI, Trader A’s BEAR GAS token is rebased to 1.10 assuming 1x leverage and a 10% fall. Trader A can now redeem his BEAR GAS token for 1.1 ETH for a total of 10% profit however, lets discuss the details on how Trader A was able to walk away with profit.
Each pair has its own max leverage and for the ETH GAS FEE pair that's 1x leverage. However, leverage and payout is capped by the opposing side of liquidity. If the total Bull positions has 100 ETH in a trade and Bear positions have 50 ETH in a trade. Then those bullish on gwei fees would operate on 0.5x leverage where each 1% move would rebase to an increase of 0.5% of bull tokens. Bear positions work on the full leverage provided on that pair ( in this example 1x ). To simply this visually, we added a box on the right to give an live feed of bull and bear leverage and total liquidity.
Were adding more exotic trading markets and concepts such as Bitcoin next block fee rates and Bitcoin Dominance trading contracts for people to take positions on with or without leverage. Were building an all in 1 trading experience for DeFi products but also want to introduce new products that traders can take advantage of on our platform.
For more information you can find our socials below
Discord permanent invite link — https://discord.gg/WzJPSjGj4h
Twitter — https://twitter.com/UniDexFinance
Telegram group — https://t.me/unidexfinance
Telegram ann channel — https://t.me/unidexapp