TL;DR — EGL lets you influence an important parameter in ETH 1.x — the gas limit. This has value for all DAOs and their users.
Why the gas limit matters for protocols
The success of protocols depends on the degree to which they are used, which in turn depends on a healthy ETH network. What’s a major factor that contributes to the health of the ETH ecosystem? The gas limit, of course.
To see why, let’s look at an example: Uniswap
On June 29th, Uniswap did ~ 1.3B in trading volume. At a 0.3% fee for swapping, that’s $3.90M/day. Vitalik says the gas limit could increase ~3x safely. That’s a gas limit of 45M. With that, Uniswap could do: ~9.9B in trading volume (1.3B x 3) and $11.7M/day in fees (3.9 * 3).
Over the course of a year, that’s $4.270B in fees if the gas limit increased 3x.
Thus, affecting the gas limit could be worth ~2,487B/year (~7.8M/day) to LP providers, and in turn, Uni holders. And that’s just one DApp in one day.
Furthermore, these numbers are when DeFi trading is down. This does not include all the new traders that would be incentivized to enter the network if fees were lower.
Uniswap’s peak trading volume was $1.3B/day. With these numbers, it could be worth $21M in trading fees, or an additional $18M.
So how does a DAO affect the gas limit?
Well, it can’t.
The problem is the community doesn’t control the gas limit: miners do. Specifically, mining pools and they don’t have clear insight into what core devs and the community think the gas limit should be and, furthermore, their incentives may not always align with those of the community. While users and DApps may want lower fees, miners may stand to benefit from congestion caused by a limited block size. This congestion may lead to more costly transactions, which are better in the short term for miners, but worse for DApp adoption. When congestion increases, users may begin to drop out of the ETH network, and protocols lose potential clients.
With EGL, the community can influence the gas limit and realign incentives. EGL rewards miners for listening to the desired gas limit as expressed by users and core devs.
Bottom line: DAOs should want to have some influence over the gas limit! The gas limit is an important parameter that greatly affects usage. This in turn has potential technical, monetary, and branding ramifications. EGL is a novel solution that maintains the allows DAOs to influence a protocol level attribute without a hard fork.
Using EGLs could better the landscape for DAOs
DAOs control treasuries of huge sums and ought to care about the long-term usability of the protocols they support. Uni’s have value because they control Uniswap. The more Uniswap is used, the better it may be for Uni holders.
Uni holders could place some chips in EGL to affect the Gas Limit, which could in turn grow their business. This is akin to investing in better infrastructure; a healthier database is ultimately a public good. Until now, the Ethereum community didn’t have a lever to influence this important parameter.
The bottom line: DAOs should care about a healthy ETH network as it could make financial sense!
Where we are today
Currently, network utilization is basically 100%, meaning meaning ETH blocks are extremely full.
ETH is executing about 15 tx/sec while there are 150,000 pending tx every minute! At this rate, it would take 6.5 days to mine all the tx that are looking for block space in a given minute. And this is when DeFi trading is down from it’s all-time highs.
By voting with EGLs, the community can have a direct influence over the gas limit, and thereby create a less congested network that allows for significantly more transactions. This could in turn increase the usage numbers for DApps.
What about ETH2.0?
This remains true in ETH2.0, where control over the gas limit will merely move from miners to validators. There will potentially be an even greater need for a coordination token such as EGL to align incentives.
What about EIP-1559?
EGL and EIP-1559 are perhaps the perfect complements! We actually wrote about it here.
In EIP-1559 is about changing the fee auction (how fees are calculated) not affecting the block size. In fact, EIP1559 takes away any economic incentive for miners to change the block size. This is because in 1559 users pay a “base fee” that is burned and then a “tip” when there is congestion to incentivize miners to include their transaction. Thus, miners only earn transaction fees when there is congestion. This means now miners have no incentive to ever change the block size. And why would they? Their economic incentive is to have more congestion.
EGL provides the missing key to incentivize miners to listen to the community.
Do the Math for Yourself
These are monthly DeFi revenues. You could find how much they would make if the gas limit were 3x bigger by just multiplying the revenues by 3x (they would be monthly) and then turn it into an annual number. Try it here.
To learn more about EGL, follow us on Twitter and join our Discord community.
You can also sign up for our newsletter here.
