Over the last few years Ethereum has seen increased adoption with many more users joining the network. In turn this inevitably means more transactions which results in higher gas fees, since the amount of transactions that can be included is limited. As a result, transaction fees can get so high that Ethereum becomes too expensive to use for a certain user demographic.
Ethereum transaction cost & Ether price
The problem here is that unlike with Bitcoin, the Ethereum mining pools set the gas limit for each block. Miners setting the gas limit isn’t working out well because there is a misalignment of incentives and a lack of clarity on what is the optimal gas limit.
Lowering the gas limit (and thus collecting more fees) means more short-term income for miners, and adjusting the gas limit up generally translates to earning less, without clarity when the demand will make up for it.
A higher gas limit may push Ethereum to require more than the average consumer PC to run a node, essentially preventing regular users from running their own node. This is an incentive and a “pricing” problem which requires a solution to allow Ethereum to continue its growth safely.
Ethereum attempted to solve the gas limit problem by allowing miners to control the blocksize. In Ethereum, the miner of each block is allowed to change the subsequent block size up or down by 0.1%. The result is that the gas limit is a bit jittery over the short run, but hovers around the gas limit targeted by the majority of the hash power.
This solution worked for a while, but the block size debate has resurfaced with the aforementioned DeFi boom. Unfortunately, this time the community is arguing over long Twitter threads on what the “right” answer is, while those with the actual power (i.e. miners) are notably absent from the conversation. This makes it unclear what the consensus among the community really is.
It’s time for another iteration in this experiment, a third way without the need for a hard fork.
A potential solution to the problem we discussed is EGL, an on-chain coordination token that allows the ETH ecosystem to signal its collaborative desire (under the guidance of the core devs) and incentivizes mining pools to follow it. EGL allows its holders to vote on the right gas limit and provides pools with an economic incentive to listen and gradually adjust it.
In the case of EGL there is a carrot only incentive. EGL rewards mining pools for adjusting the gas limit according to the ecosystem’s collaborative desired gas limit — that’s the “carrot”. But there is no “stick” forcing them to follow the EGL desired gas limit. EGL cannot force pools to adjust their gas limit to levels they consider unsafe. EGL gives the community a voice and a means to signal their preference in this debate. While there is still no optimal solution, EGL will help get closer to social consensus about the gas limit.
Furthermore EGL could potentially serve as the perfect bridge to smooth the transition to EIP-1559. EGL aims to reward pools substantially, potentially similarly to their expected revenues from fees, thus it might allow for pools to maintain their expected revenues while benefitting users with EIP-1559 superior monetary policy and fee predictability. This is possible since the value created by EGL should suffice to compensate pools, alleviating the argument whether the value from fees should compensate pools or be burned.
This combination of factors lead us to believe that EGL can play a role in the alignment of communities and finding the right balance between low and high gaslimits, ultimately leading to a better ecosystem for all.