Extremely high gas price is a challenge along with a chance to Smart Wallets
An unrestricted subsidy is not sustainable and harms the system.
A targeted subsidy is effective, but how to leave users?
The billing system with a fee account is important.
Layer 2 is demanded, and Smart Wallets are more friendly to integrate!
Extremely high gas price is a challenge
Liquidity mining drives a new boom on ethereum with high transaction fees in the meantime. Ethereum Daily Gas Used hits historical high after raising the block gas limit from 10,000,000 to 12,500,000 per block, but the daily average gas price remains high. The average gas price(I use the sum daily average/number of days) in July is 57.3 gwei, almost 4.3 times the data in April. The threshold of DeFi rises because of the high gas fee, users holding assets under 10000 USD feel uncomfortable about joining "farming."
With meta-tx, Smart Wallets can pay the gas fee in represent of end-users. Moreover, they can choose to give a subsidy, which means users can send free transactions. Some Smart Wallets, e.g., Argent, Authereum, Dapper, MYKEY, and Dharma has a subsidy plan to attract users to use. It's a better chance for those wallets to get a transaction through than traditional wallets to gain market share. While Dharma announced to offer free Uniswap transactions, accounts created daily has an explosive growth, while in the most congestive day(August 12), 303 new users are acquired.
However, when the gas price hits extremely high, the chance becomes huge challenges. The operator of Smart Wallets cannot bear such a high cost. According to DuneAnalytics, Argent spent 1058 ETH to pay for the gas fee(most of them are under subsidy) in the last 30 days, valuing $340k based on average price $320. It's reported that Argent raises $12m, which can only cover the costs for three years, even if it's used exclusively to pay subsidies. In Aug.13, Argent spent 93 ETH for gas abstraction, valuing $40k based on the current price.
The death of the unrestricted subsidy
Obviously, it's not sustainable(quote from Itamar, CEO of Argent). When gasprice increase continuously, the subsidy becomes more unsustainable. So most smart wallets discontinued or cut subsidy programs. Authereum announced a gas policy on April 16 and soon updated in July according to the rising gasprice. Argent announced "fair use policy," so only security operations remain free, and users need to pay for other operations unless the subsidized by dapps. Dapper stops offering free weekly transactions, and only official Dapper partner dapps have access to some free transactions.
On the contrary, the subsidy is even ecologically harmful. The first reason is it drives an unbalanced supply and demand. The free transactions attract users to send transactions at will, regardless of demand. In extreme cases, such as in Black Thursday (March 12), things got worse with subsidy policy. On that day, people competed to pay their debts by sending transactions, but the gasprice is pretty high. While Argent gives a generous gasprice to make all transactions confirmed instantly regardless of whether it's urgent. That also makes Argent spent a total of 55 ETH in the event and adds fuel to the fire. The second reason is that it attracts many bonus-hunters to earn money from the subsidy policy using gastoken, for instance.
How about the targeted subsidy?
A targeted subsidy is a new way that Smart Wallets want to try. "Targeted" means it only offers free transactions for designated dapps, and the dapp providers may pay the cost. For example, DSR in Argent is subsidized by Maker, and Dapper subsidizes CrypoKitties in Dapper. A targeted subsidy is a marketing strategy to promote the product, but does it really work? When Argent announced to stop subsidy for AAVE on July 18, the weekly average transactions drops 70% quickly. Will users choose to use Smart Wallet after subsidy stops? We'll need to watch for a longer period of time.
How to construct the billing system?
In summary, users need to pay for subsidy-uncovered transactions. But how to pay? Currently, there're four main ways of billing model:
(1) Deposit ETH to fee account;
In Deposit ETH mode, users need to deposit network fee for future use. It only supports ETH; when sending transactions, the relayer can charge the user with exact gas consumption(Gnosis). Users can even send transactions themselves(Monolith).
(2) Deposit to fee account - Multiple tokens supported;
Users deposit network fee the same as the case (1); the main difference is that more tokens are supported(MYKEY). This has the additional challenge for relayers of having to calculate the value of the currency corresponding to the gas consumption.
(3) Pay per transaction;
In this mode, there's no fee account, and users need to pay for each transaction using ETH or other tokens(Argent).
(4) Prepaid Transaction Pass.
In this mode, users buy some transaction pass and redeem the pass when sending transactions(Dapper).
Although it adds challenge for relayers, a fee account is still important because it's the most user-friendly way. It can support stablecoins so users don't need to know anything about ETH or gasprice, and it reduces fractions compared to "Pay per transaction" mode and has lower price risk compared to "Prepaid Transaction Pass" mode.
Conclusion
In short, the music stops for subsidy policy when gasprice goes higher and higher. Smart Wallets need to find new ways to remove barriers of using blockchain. A targeted subsidy is a potential method but needs more time to watch. Meanwhile, a fee account supporting multiple tokens, including stablecoins, is important to reduce friction. Finally, Layer-2 solutions is expected to reduce the transaction fee to make it available to the general public.
About Smart Wallet Trend
Smart Wallet Trend is a newsletter where you can find news, insights and fresh ideas about Smart Wallets.
My name is Yao Xiang, currently a researcher of MYKEY Lab.
Feel free to contact me via comment or send 📧email to me directly.