Increase of Minimum Gas Fee

Governance
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Dear Celo Community,

We bring forward a proposal to increase the minimum base gas fee on Celo and are looking forward to getting feedback from all of you on this.

Proposal

Increase the gas price on Celo such that a standard ERC20 transfer on Celo costs around 0.5 cent or 0.005 $cUSD.*

Rationale

1) Ecosystem cost of transactions
As the creator of a transaction, the main (marginal) cost of any transaction is the gas users have to pay to get it included in the blockchain. Currently, gas prices on Celo are very low, transactions are virtually free.

The cost of a transaction for the wider Celo ecosystem has additional dimensions to it than the gas spent. Namely, every transaction needs to be processed by nodes and is stored forever in the Celo blockchain. While it does not have an effect on the blockchain today, this will have consequences in the very long term. We realized we never accounted for this scenario when gas prices were calculated and proposed.

Increasing the gas price would ensure that transactions which are processed achieve a higher minimum benefit (= the gas paid), which warrants the long-term cost for the overall ecosystem.

2) Stability and security of the network
An additional benefit is that higher minimum transaction fees can be leveraged to increase the health and security of the overall blockchain by linking the network token to gas spent (e.g., through a burn mechanism) and, thus, render 51% or similar attacks more difficult.

Implementation

There are a number of ways we can implement the proposal and we have already thought about a few. However, before going into these details, we first want to get feedback on the proposal and its rationale.

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Please let us know what you think! Weā€™re happy to get input on this and explore how to best proceed.

@product-matt for a core of cLabs team members thinking about network economics

*PS: Note that we plan to propose to the community an additional mechanism which will keep gas fees below $0.001 for various types of p2p payments and micro transactions, for example in a humanitarian context.

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Hey Matt can you include these 2 in a clear way in the post:
Current Minimum Gas Fee:
Proposed Minimum Gas Fee:
% Increase:

That will be more clear to understand for me :slight_smile:
Thanks

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sure, here you go:

  • currently an ERC20 transfer costs around cUSD 0.000,02
  • the target is for this to cost cUSD 0.005
  • this means an increase of 250x
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I tend to agree with this proposal but Iā€™m not sure if 250X is too much :thinking:
This (and correct me if Iā€™m wrong) will put the txt cost on Celo on the same level as Polygon and Fantom and possibly reduce some of the Celo advantages that it has right now.

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Thanks Matt for putting this on my radar.

Iā€™m the founder of Nuzo an eCommerce marketplace in Kenya where buyers and sellers earn tokenized rewards for transacting on Nuzo. We recently launched (article here) and now have 50k users in Kenya.

A key Celo value prop for us at Nuzo is low transaction costs, but compared to M-Pesa Celo is already FAR cheaper (see here) and I donā€™t think this proposal pushes the costs of Celo transactions above any meaningful threshold of resistance from a typical Kenyan userā€™s perspective.

That said, I think we need to be thoughtful about how fees are allocated. There is basic infrastructure that is still lacking for Celo (e.g., mobile money and bank on and off-ramps) to be relevant in Africa and other frontier economies where folks have the greatest need for financial inclusion technology like Celo. I know Nikhilā€™s team is hard at work making this happen, but I wanted to put it out there that from a C2B merchant payments perspective, price is a factor, but there are other factors at play, too!

Further, I feel that optimizing for accumulation of existing on-chain capital to Celo is negative sum thinking. Weā€™re not in competition with Polygon or Solana; weā€™re in competition with banks and telcos who charge 6% transaction fees. If we need to charge a bit more to build the infrastructure necessary for Celo to become the defacto Web3 payment standard, we should charge a bit more and build! Just my $0.02ā€¦

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I am 1000% against this proposal.

  1. The cost of computing and infra is negligible compared to the validator rewards currently given out.
  2. The amount of staked celo necessary to become a validator is high already and is orthogonal to the actual gas price per tx

Celo network activity is already shrinking in volume AND thereā€™s already a fair market for block space.
Raising the minimal gas price is just circumventing the existing block gas pricing mechanism and stifling the network activity even more by introducing friction.

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Though I agree that Celo gas fees have plenty of room to increase, I strongly object to the proposed increases on the basis that they would render a number of applications built on Celo infeasible, namely those applications fulfilling Celoā€™s initial core mission - an affordable mobile payments network that can be used by the unbanked and underbanked populations in emerging market economies. Values and inclusivity for the under-served populations of the planet are what differentiates Celo from other blockchains, and an increase like this would be grossly unfair to the many entrepreneurs across Africa, Latin America, and Southeast Asia who have already elected to build on Celo on the basis that affordable transactions can be made on top of the network. I believe that mobile payments (and credit) are Celoā€™s best shot at scaling, and the proposed increases would largely render this possibility infeasible.

My suggestion would be a target gas fee of $.001 for all payments below a certain quantity (for example, $100).

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Why even set a minimal at all?
The block building algorithm already has a built in gas auction so let the market do what the market does.

Manipulating the floor gas price make no sense at all when:

  1. blockchain technology is advancing and we will be able to support higher TPS
  2. the validators donā€™t need this money to pay for their infra

This will only drive users away from Celo because on many other chains, gas price is negligible and why would someone come to Celo if thereā€™s more transaction friction / tax?

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With the advancement of technology and the competitive nature with other I donā€™t see the reasoning behind this proposal. 1GB few years back was had a cost tag to discuss. Thatā€™s not a discussion anymore. With that said, costs are rather going lower. I think there is much room to clarify here.

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Views are my own:
Historically, the demand of $CELO has been supported by the reserve for cStables (proxy for previous network growth), incremental demand for cStables resulted in additional demand for CELO (CELOā€™s target reserve ratio is 50%). However, over the last months the reserve has stopped buying significant quantities of $CELO due to dynamic hedging, which dictates that USDC/DAI should 1:1 cover cStables as the over-collateralization ratio approaches 2:1 (around where it is now due to decrease in other collateral, BTC/ETH). It doesnā€™t seem like a significant reversal of this shift is on the horizon, though I defer to the Mento Team (spun out of cLabs) and Reserve Community for the final word. Consequently, enabling new sources of demand for $CELO has become relevant. As a reminder, most grant budget for the ecosystem (incl. both on and off-chain) is based on the price of CELO.

Although currently the gas spent does not directly result in demand for $CELO (goes to onchain community fund), it is easy to imagine ways how that link could be created, for example, via EIP-1559 type burning or buy-backs. Thus, increasing the base minimum gas price to $0.005 is a first step in the direction of making $CELO demand reflect network growth.

Personally, I donā€™t think most activity will be turned away from a half-cent fee. As mentioned in the ā€œPSā€ of Mattā€™s article, there should be kickbacks/rebates for humanitarian projects, but CELO must also have a sustainable business model and value accrual to scale the ReFi movement.

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We are building a Pay everyone at once payment rail at www.vault3.net (part of celoCamp).

Our operating model is when payment is paid, this can be automatically split to all parties at once for which we charge a 1% fee for this and a maximum fee and we cover the gas fees.

As an example on a $10 transaction that was can be split 4 ways, so the gas fee is $0.004 and we got $0.10. But under this would now be $0.02, now a 20% cost we are paying.

But for online videos, the sale may be a $0.10 price, that is paid to the creator (85%), platform (10%), DAO (5%) and we take an initial 1% to do this. If the creator shared the revenue with a few others, then would be split as well. The gas fee of $0.005 x 4 is $0.02 and we charged only $0.001. We are losing money, whereas before this was $0.002 which we were OK with as our larger transactions covered this.

The idea behind this is small business can stop being invisible banks as the money goes to all parties involved at the start, the real idea of smart money instead of just copying dumb plastic cards. A 7.9% saving for the business is now not just bank fees being saved, but less accounting and risk are now in play.

But the main premise behind gas fees is not the value of the transactions, but the amount of data in the transaction so doing gas fees that have a value model is breaking this ideal.

But we need a model that supports low-value activities as that opens doors to new ways like we are doing where in the future payments could be split 100 ways down an even longer chain and not linked to who or want you are doing as then brings in the human element again of who fits and doesnā€™t fit.

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If we look at the current disruption of business models due to the sudden change in energy prices, itā€™s worth listing important aspects of any change in minimum gas fee to avoid disruption:

  • change should be planned and published for a known date in the future (like 3 or 6 months away)
  • if the change is important, change should be planned in steps, applying for certain periods length (like 3 months at least)
  • when the change is in place, there should be some sort of assurance that the price will stay the same for a certain period (1 year or more)

Uncertainty is killing any business model, but even more so when traditional businesses are still lukewarm moving to this new technology.

In short, itā€™s more of a pricing schedule than a price increase that should be agreed to make things more predictable.

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1 cent would be even better, for the sake of offering something simple, understandable, and user friendly. Fractional cents are too abstract a concept for most people; and correct me if Iā€™m wrong here, but isnā€™t 1 cent an insignificant or barely significant amount of money for pretty much all people who use mobile phones, internet, etc?

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Seems quite high, as $0.001 is 10% of 1 cent. We provide UBI to the most vulnerable communities and transfers of few cents on a dollar is very common (which is very different when considering local currencies). I agree that Celo should increase significantly the gas prices to also improve its economics and benefit all the ecosystem, but $0.005 seems a big jump. Maybe first increase to $0.0005 and measure its impact before going for higher?

How would the humanitarian transaction be defined? Bellow X amount? If its something like min $0.005 or 1% (which ever is lower), Iā€™m ok with it :slight_smile:

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250x increase sounds huge to me. being a developer and developing a project on CELO always interested me of the reduced gas cost in the first place.

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Some thoughts on this that I also shared with some of you async:

If we are looking at protocol revenue (or burn amount in a EIP-1559 like mechanism) as revenue = avg tx fee * #number of txs (or R = p * D(p)), then purely from a protocol economics perspective itā€™s not clear to me that an increase in the min fee (p) would actually increase protocol revenue (R), considering that #number of txs (D(p)) is a function of tx fees (p).

In other words, I think we would need a better understanding of block space demand before actually concluding that this would work in the direction that is outlined in the proposal. So Iā€™m wondering if there was any further analysis in that direction.

I know that this is a difficult empirical question but maybe there is something to learn from current tx pricing. If e.g. the current avg fee is close to the current min, then it would suggest to me that a further increase would actually have an adverse ā€˜volume effectā€™. If the current avg fee is consistently above the current min, I think its fair to assume that there is some room for an increase.

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Exactly. That type of increase sounds way too high imo. It would greatly hinder at least one project - that I am aware of - that is considering moving their microtransactions to Celo.

It also reduces the moat that Celo has compared to other chains like Polygon, Optimism, etc.

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thanks for the feedback on implementation steps, I agree with letting users know early - it is almost a given as changes at the core blockchain layer need to be agreed upon (and discussed by) the community. which is why I started this thread here too.

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My intepretation of the projectā€™s goal was always to keep transaction fees below a cent ā€“ I think I had mentioned this number a few times before, eg this tweet. I do recognize there are a number of use cases that, now that minimum number has been lower for a while, are baking in that assumption.

The challenge is that a transaction on an EVM results in a bunch of resource consumption not just on validators (thereā€™s an argument theyā€™re paid separately) but on every full node. Setting realistic gas prices is really a denial of service prevention mechanism, and I think that the current values are set too low. Right now you can fill every entire block for less than 1 cent in total(!). I see this as a straight-up misconfiguration!

On a related note, itā€™s hard to make the EVM (on any chain, Celo or otherwise) scale to the throughput we would like. cLabs is actively working on some pretty radical ways of scaling performance, but until that happens, a situation where there is high demand for block space under EIP1559 will always cause gas prices to rise and remain much higher. So I would urge caution in baking in very low gas costs as an assumption.

To balance the concerns in this thread, how do folks feel about a minimum fee somewhere in the ~0.1 US cent range for an ERC20 transfer (based on current CELO prices)?

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thanks for your comments - weā€™re working on an upgraded proposal here and will get back shortly to all of you.

Regarding your comments:

Yes weā€™re working hard towards higher throughput at Celo too. The lower bound of min_gas_fee does not apply if blocks are full, in that case the minimum increases (exponentially). The parameter weā€™re discussing here only applies if blocks are not fully used. And higher throughput, given everything else equal, means higher probability of space in the blocks - which will actually increase the time in which the regime is in the state of min_gas_fee = lower bound.

Note that increasing the min_gas_fee does not increase validator rewards. All this gas currently goes to thee community fund. For the future, we are thinking about introducing a burning mechanism instead so that Celo becomes deflationary in the long run.