What are Gas Markets?

Gas represents the economic fabric that binds blockchains together. Validators supply blockspace (and compute) for transactions, and Buyers pay for this blockspace, to process transactions. While Gas may ‘fuel’ blockchains, or be seen simply as ‘transaction fees’, the onset of Gas Markets very much changes this definition.

• At a macro level, gas prices move rapidly and are often seen as a barometer for industry volatility. The early motivation behind gas markets in this context is to remove the volatility/uncertainty, so that both the risk of transacting in DeFi is reduced, and more importantly, so that the end user experience can be streamlined. Gas Markets enable Chains, Protocols (via B2B sales), and Wallets to abstract gas prices away entirely removing gas vol from the end-user altogether

• At a micro level, the concept of gas extends beyond just ‘blockspace’ into a market perhaps more analogous to Oil Refining or Real Estate. How much gas should Validators (called Proposers) sell? When do they sell? Which ‘parcels’ of gas to sell? Do they enter into revenue sharing agreements? Do they securitize their blockspace? And so forth…there are countless comparisons to Commodity Trading and various forms of offtake agreements.

• In DeFi, most of the trades and Validator Execution-Layer Revenues are driven by Institutional/HFT players. These traders need realtime precision and will pay handsomely for custom order execution - for example, guaranteeing inclusion into a specific block (called an Inclusion Preconf), guaranteeing a result or ‘state’ in a specific block (called an Execution Preconf), or the option to guarantee either of the above.

• Custom order execution is not new - some of this is done already via private or OTC markets with Block Builders. Block Builders play an essential role in PBS but don’t ‘own’ the blockspace however, and so they are limited in their capacity to offer and support certain guarantees.

With Validators now able to structure markets as they choose and delegate this accordingly, gas markets will not only increase the choices that gas buyers have, it will dramatically increase the fees that Validators earn triggering a paradigm shift for both blockchains and onchain actors in general.

Note that the terms Validator and Proposer may be used interchangeably.