For Web3 to live up to its promise, it’s important that applications operate as much on-chain as possible (with privacy concerns hopefully addressed using ZK-Proofs) to ensure decentralization.
However, although the idea of decentralization is important, the current environment is an awful experience for users. To ensure that transactions are valid, people have to pay gas to complete any on-chain action.
Non-Ethereum chains can help alleviate this pain by reducing gas fees to pennies, but this doesn’t fully solve the issue. Humans hate loss and knowing that actions will cost money will ultimately result in users performing fewer actions.
In certain circumstances, this hesitance to complete actions can be a good thing. It acts as a sort of spam filter as bad actors will need to pay for their actions. However, this is more of a bug than a feature.
To put the situation in Web2 terms, what if you had to pay $.05 for every Google search? $1 for every YouTube video? $.0002 to like a post on Facebook? Usage of these platforms would be significantly less than what we see today.
To increase on-chain activity, the concept of “gas prices” needs to be abstracted away. For purchases of items like NFTs, having transaction costs are reasonable, but for most internet activities variable costs upset users.
The first solution that comes to mind is to have companies just pay for gas for the users. This is similar to how companies currently pay for storing data for their users. This however just brings us to the same situation of web2 where the users become the products.
A potential solution is a “Gas Data Plan”. In the same way that people pay Verizon for a certain amount of cellular data to gain access to the internet, this could also apply for gas fees all across Web3.
Users would pay one flat monthly fee to have all gas fees be covered up to a limit (similar to a data limit). People are ok with the data plans because it feels more like a fixed cost instead of a variable cost. This would result in users being much more willing to complete actions (with a limit in place to prevent extreme spending).
However, this idea also completely defeats the purpose of decentralization, as a few company(s) would have an immense amount of control over consumer behavior.
Instead, we propose for this to be implemented on a platform level. We are coining this as “Gas Prime”, as similar to Amazon, a product can cover transaction fees to increase overall market activity and become more dominant.
Products that require many actions from their users can offer this plan to users in the form of a smart contract, and any gas costing operations on the product would be covered. Users on the platform would no longer have to consider the individual transaction cost for every purchase or action.
OpenSea has three main gas costing activities - buying, listing, and minting NFTs. For the purpose of this example, let’s say that OpenSea’s “Gas Prime” only covers buying and listing NFTs, as these are more consumer-focused actions.
We pulled all our data from Dune and Ultrasound for the past 30 days.
An average*** consumer completes ~4 transactions, spending 0.125Ξ in gas total. With OpenSea’s 2.5% transaction fee, this equates to 0.078Ξ of revenue for the company. (Average is likely not the best metric, as a few large whales make up a majority of OpenSea’s activity).
If the price to buy OpenSea Prime is .125Ξ, OpenSea would then either profit from the program per user, OR the user would then have completed more transactions than average. This would increase the overall activity of the platform, making it even more popular.
However, OpenSea would have to do this at a loss. With marginal gas price per transaction being 0.033Ξ and the marginal revenue per transaction being 0.021Ξ, OpenSea would lose 0.012Ξ per transaction, which is a fairly high CAC. It’s essential that an eventual gas limit be set so that users are incentivized not to spend as much gas as possible.
For the current state of OpenSea, this type of feature wouldn’t really make sense. It is an incredibly dominant player in the NFT marketplace scene. For competing marketplaces, this could be an interesting play in order to win over users.
This play works better as gas fees drop, as the transaction costs that the marketplace would earn would greatly outweigh the cost of covering gas, making a feature like this very valuable.
With the current state of Ethereum gas, for OpenSea to not lose money on an individual transaction (either break-even or profit) after a user has spent more than the price of OpenSea Prime, they could potentially only pay for gas for high-value transactions.
With the current 2.5% transaction fee, transactions would have to be worth 1.32Ξ for OpenSea to break even. This would cater towards whales, who likely are already making many transactions on the platform already, which would make gating by volume of the transaction an ill-advised strategy.
Although we haven’t fully specked out the contract for this, implementation for this type of feature should be feasible. A user would call a contract that would have specific terms of which other contracts would have their gas covered, what the gas limit is, and how much this plan will cost. Ironically this action will cost gas.
Now when a user tries to perform an action that normally costs gas, they will actually interact with the parent smart contract, which will cover gas using the amount stored by the individual to complete the action. It will feel like that actions are free but in reality, it was paid for ahead of time by them.
It’s important for actions to be on-chain in Web3, but paying for gas for every action you take sucks. We explored a scenario where products cover gas fees, which would lead to a better user experience and increase market activity. Currently, if OpenSea were to cover gas they would lose a ton of money, so it wouldn’t make the most amount of sense. However, if gas fees do end up dropping, implementing an aggressive customer acquisition strategy like this could be worth it to capture more market share.
This is only one possible solution to solve the pain of gas, and we are curious about other ways to solve this problem! Hit us up on Twitter @wlhunter25 and @BraunchEth, we would love to chat.