Intents in blockchain ecosystems represent user desires that service providers fulfill, enabling seamless on-chain interactions in the upcoming chain-abstracted world. At Hedged Labs, we are building Gazelle with the goal of optimizing transaction costs for users of such services. We aim to achieve this by strategically negotiating with block builders. Retail users can benefit by focusing on the bottom part of the block rather than competing for the top slots for more economical transaction placement. Balance unification and clearing house projects that coordinate liquidity settlement solve fragmentation issues and ensure that users don’t need to worry about the underlying chains involved. Through Gazelle, we work directly with them, removing the operational hassle of managing gas costs.
The Economics of Blockspace
In the Ethereum ecosystem, block builders and searchers play key roles in the transaction inclusion process. Builders or validators compile transactions into blocks while searchers, typically engaged in activities like arbitrage and liquidation, seek to place their transactions at optimal positions within these blocks to maximize profit.
Blockspace Dynamics
- Priority Gas Auctions: Searchers bid high gas fees to secure top positions. Builders prioritize these transactions based on the fees offered, maximizing their profit from each block.
- Top of the Block: Premium block placement is auctioned off at high prices due to the demand for the earliest execution. These are highly coveted by searchers for their ability to execute transactions immediately, which is crucial for sophisticated actors and arbitrageurs.
- Bottom of the Block: Less competitive, cheaper placement in the block suitable for non-urgent transactions. These are ideal for transactions that do not require immediate execution and are more cost-effective, suiting the needs of unsophisticated retail users.
- Private Deals: Builders can enter agreements with certain parties for prioritized transaction placement, often involving fixed fees or profit-sharing models.
Gas Sponsorship
A significant hurdle in interacting with multiple chains is the need for users to hold native tokens for gas fees on each chain. Gas sponsorship addresses this issue by allowing a third party to cover the costs, significantly improving user experience:
- Simplified Transactions: Users can execute transactions without the need to maintain gas balances on multiple chains, reducing complexity and friction.
- Solver Efficiency: Solvers working on fulfilling intents can operate more effectively without worrying about gas fees on each chain, leading to greater operational efficiency and more competitive execution.
- Facilitating Adoption: Removing the barrier of managing gas fees across different chains, gas sponsorship can drive broader adoption of cross-chain applications and services.
EIP-4337 vs EIP-7702
EIP-4337
EIP-4337 aims to enhance account abstraction by introducing user operations, bundlers, and executors. Despite its potential for gas savings and smart contract wallet functionalities, it faces numerous issues. The specifications are complex, with inconsistencies and incomplete documentation creating challenges for developers. There is also a risk to existing smart accounts as they could break, necessitating the use of upgradeable proxies. Additionally, the assumptions about bundlers' sophistication and a flawed reputation system that fails to penalize bad behavior effectively further complicate the implementation of EIP-4337.
EIP-7702
In contrast, EIP-7702 streamlines the sponsorship process through the use of invokers. These proposals simplify the implementation by reducing the complexity and focusing on modularity, making it easier and more efficient for Gazelle to sponsor transactions. By leveraging these proposals, Gazelle can provide seamless, modern, and modular gas sponsorship, enhancing end-user experience and operational efficiency of crypto protocols. The reduced complexity and improved modularity offered by EIP-7702 makes it a more practical and effective solution compared to EIP-4337.
Transaction Delivery with Gazelle
Our partners may choose a sponsorship method depending on the transaction methods they use. Gazelle offers both sponsor-only mode and execution mode, providing different advantages to different users. In sponsor-only mode, Gazelle acts as a paymaster. In execution mode, Gazelle can guarantee block inclusion based on the level of sponsorship. All that while hedging gas costs with a simple-to-understand single upfront payment.
Delegated Execution
Partners can delegate transaction execution to Gazelle, allowing it to act as a bundler or relayer.
Cost Reduction
Instead of competing in high-cost auctions, Gazelle negotiates for the cheaper bottom part of the block with builders directly, ensuring cost-effective transaction placement.
Time Shuffling
Gazelle can implement time shuffling to fulfill different user needs by placing various transactions in the mempool at optimized times. For economical subscription tiers, transaction inclusion may be delayed to achieve a more favorable gas price or block placement. Optimizing for different kinds of users helps to mitigate price inflation and fights network congestion.
Gas Reinsurance
In times of unexpected critical congestion, Gazelle reinsures its gas insurance vault, working directly with our blockspace futures partners.
Abstraction through Intents
Solvers that provide RFQ swaps and generalized intents compete to find optimal execution under market constraints. This enhances the UX and fixes the liquidity fragmentation but can contribute to sandwiching (front-running and back-running transactions). The debate between sandwiching and unbundling in DeFi highlights ethical challenges. Sandwiching operates within public mempool rules but is often viewed as unethical. Unbundling involves exploiting private mempool data and crossing ethical boundaries. Both practices emphasize the need for better standards and operational transparency to protect traders.
In intent execution, users specify trading tolerances and instead of querying AMMs and hoping for favorable prices, they pass execution onto solvers. Intent-based execution plays a crucial role in enhancing user experience in an increasingly multi- and cross-chain world. By coordinating liquidity settlement, solvers reduce the cost and complexity of cross-chain rebalancing and accessing funds and services on different layers. Well-designed intent markets and cross-chain clearing mechanisms ensure fair and efficient execution, addressing the ethical and operational complexities inherent in DeFi.
However, the gas management in the intent markets has not been sufficiently improved. In the chain-abstracted world, one of the key parameters available to the solvers are local network congestion states. Moreover, just because the gas fee is being baked into the total cost of the trade shown to the user, at times of congestion, the total fees may take a significant percentage of the assets being swapped or transferred, especially for smaller size trades which are known to gain from RFQ execution. Users that are conditioned to seeing few % fees will not be happy with a quote eating away 10% of their trade. Through Gazelle’s hedged gas subscriptions, we facilitate stable quotes to the end user independently from the network conditions.
While well-designed markets can incentivize better execution, both MEV and intent markets ultimately capture value from idiosyncratic traders. Hedged Labs is not trying to solve the MEV; we just return it to users in the form of cashback. Where the Gazelle Execution Mode is selected, the MEV captured is refunded back to users requesting the transaction, providing a fairer operation and unexpected cashback surprises.
Conclusion
At Hedged Labs, we believe that while the paymasters' gas payments with other than native tokens or gas costs being baked into total intent execution cost are improvements over the baseline, offering a more radical approach is needed. Using gas options to underwrite insurance for transaction inclusion, we facilitate the stabilization of gas costs for solvers that are carried onto end users, providing a predictable, familiar experience every time a transaction is requested. Cross-chain clearing houses with stabilized gas prices against the fluctuating demand exemplify the potential for innovative solutions to overcome current UX obstacles faced by newly onboarded users, paving the way for a more integrated and user-friendly blockchain ecosystem.
