Why Ethereum Gas Price Estimation Matters for DeFi

Gas price estimation is the backbone of efficient Ethereum transactions, directly impacting the performance and cost of decentralized finance (DeFi) protocols like Ethena. For Ethena, a synthetic dollar protocol, precise Ethereum gas price estimation ensures seamless minting and redeeming of USDe, delivering a smooth user experience and maintaining competitiveness in the DeFi landscape.

Inaccurate gas price estimation can cause significant issues:

• Underestimation: Leads to failed transactions, financial losses, and frustrated users.

• Overestimation: Inflates costs, reducing efficiency compared to other USD assets.

Ethena collaborates with Blocknative, a core partner in real-time gas analytics, to bolster resilience and optimize fees.

How Ethena Uses Gas Price Estimation

Ethena integrates L1 transaction fees into its core operations, making DeFi gas optimization critical for minting and redeeming USDe. Our approach delivers:

• Operational Efficiency: Accurate gas price estimates minimize transaction failures.

• Cost Savings: Optimized gas usage lowers fees for users.

• Protocol Stability: Robust estimation ensures reliability during network volatility.

By leveraging advanced tools and real-time data, Ethena navigates Ethereum’s dynamic gas market with precision.

Common Gas Price Estimation Methods

Gas price estimation calculates the computational resources needed for Ethereum transactions. Below are the most common methods, their benefits, and limitations:

1. Gas Estimation Libraries/Tools:

   • Examples: Web3.js, ethers.js, Blocknative Gas Estimator, Tenderly.

   • Pros: Convenient, integrates with workflows, provides additional insights.

   • Cons: Less control, relies on third-party services.

2. Empirical Estimation with Historical Data:

   • How It Works: Analyzes past transactions to identify gas trends.

   • Pros: Leverages real-world data, ideal for recurring transactions.

   • Cons: Inflexible for dynamic contracts, not adaptive to state changes.

3. Overestimation:

   • How It Works: Sets high gas prices to ensure success.  Accept the extra cost.

   • Pros: Guarantees execution, simple for edge cases.

   • Cons: Inefficient, increases costs.

Challenges in Ethereum Gas Price Prediction

Predicting gas prices in Ethereum is inherently difficult due to the network's dynamic nature and post-EIP-1559 mechanics (base fee + priority fee). Factors like fluctuating mempool activity, sudden congestion from events (e.g., market spikes or NFT launches), and the need to balance transaction speed against cost create uncertainty. Underpredicting risks delays or non-inclusion, while overpredicting inflates expenses unnecessarily. Models must validate against actual block confirmations to refine accuracy, adding computational complexity.

To achieve reliable results, advanced methods are often employed:

• Quantile Regression Models: Optimize predictions for minimum viable gas prices, targeting next-block inclusion or ~10-second confirmations.

• Real-Time Mempool Data: Analyzes pending transactions for current market insights, surpassing on-chain data limitations.

• Confidence Levels: Offers tiered probabilities (e.g., 99% for urgent, high-cost scenarios; 50% for cost-saving, slower ones).

• Distribution Analysis: Maps gas price spreads in the mempool to inform strategic pricing.

These techniques, integrated into tools like Blocknative's Gas Platform APIs, help protocols like Ethena navigate volatility with precision.

Combining Methods for Resilient Gas Estimation

At Ethena, we recognize that no single gas price estimation method is foolproof. To achieve resilience, accuracy, and efficiency, we employ a layered approach that combines multiple strategies, tailored to different scenarios. This ensures our protocol remains robust, even in volatile network conditions.

Our gas estimation framework includes:

• Blocknative integration for real-time L1 prices and dynamic USDe operations.

• Node simulations for precise, state-aware calculations (primarily for gas units confirmation).

• Historical analysis for trend-based adjustments in routine tasks.

• Buffers and fallbacks to manage fluctuations and protect against delays without excess costs.

By blending these methods, Ethena creates a robust system that adapts to Ethereum’s dynamic environment. This layered approach minimizes risks, optimizes costs, and delivers a seamless experience for users interacting with our protocol.

Explore Ethena’s technical documentation for insights into our operational strategies.

FAQs on Ethereum Gas Estimation

1. What is gas estimation in Ethereum? It determines the resources and fees needed for transactions.

2. Why is it essential for DeFi? It avoids failures and optimizes costs in protocols like Ethena.

3. What makes gas price prediction challenging? Network volatility and mempool fluctuations require balancing speed and expense.

4. How do methods like quantile regression help? They provide accurate, confidence-based forecasts for inclusion timing.

5. How does Blocknative contribute? Its APIs deliver real-time data and predictive models for enhanced accuracy.

6. Can gas be estimated manually? Yes, but automated tools reduce errors and improve efficiency.

Conclusion: Precision in DeFi Gas Price Estimation

Gas price estimation is more than a technical challenge for Ethena - it’s a strategic imperative that drives efficiency and user satisfaction in DeFi.

By combining Blocknative’s real-time insights with a layered estimation approach, we optimize blockchain gas fees and maintain a competitive edge.