Possibly the largest non-fungible token (NFT) sale in Ethereum history, the Otherside “virtual land sale” pushed Ethereum fees high enough to render the entire network virtually unusable for several hours on Saturday.
In case you missed it – the highly anticipated NFT launch netted over $400 million in sales for Yuga Labs, the startup behind the Bored Ape Yacht Club NFT collection. It also generated an unprecedented $100 million in Ethereum gas fees in just under an hour.
In at least one sense, the recent spike in Ethereum gas prices is kind of like the surge in prices for the other kind of gas – the one that fuels your car.
With the on-chain “gas wars,” the question last weekend became how much of the problem was attributable to Ethereum’s limitations versus poor planning (or deliberate scheming) from Yuga Labs, whose sale of digital “land” was the proximate cause of the run-up in fees.
Gas wars on Ethereum
Gas fees – which users are required to pay whenever they transact on Ethereum – increase in response to higher network activity. While some gas is “burned” by the network, users can also set a “tip” to go to the so-called miners who process transactions.
A higher tip can be used to expedite a transaction – bumping that transaction to the front of the line so it can be processed more quickly. Too low of a tip can lead to transactions that stall or fail entirely, as happened frequently throughout Saturday night.
Enough people wanted in on Otherside this past weekend that gas fees across Ethereum shot up to historic highs. Twitter was quickly flooded with reports of users spending thousands of dollars’ worth of gas on individual transactions.
Some users claimed to have paid the high fees by accident, whereas others paid the gas knowingly, only to learn later on that their transactions had failed.
Yuga quickly promised to refund gas fees for Otherside minters with failed transactions, but the exorbitant fees and failures afflicted Ethereum users networkwide.
The Yuga Labs debacle: What happened
In a tweeted apology, Yuga said on Saturday that Ethereum’s low network capacity posed a “bottleneck” for the project. According to Yuga, the debacle made it “abundantly clear” that it would need its own chain in order to “properly scale” moving forward.
But not everyone viewed Sunday’s sale as just an indictment of Ethereum. Critics of Yuga said its engineers could have easily programmed Otherside’s smart contracts to expend less gas.
Will Papper, co-founder of SyndicateDAO, explained in a popular Twitter thread that “[m]odifying a few words would have saved $80M+.”
On top of failing to optimize smart contracts, Yuga didn’t appear to adopt enough safeguards to prevent the demand for Otherside from clogging up the network.
On one hand, Yuga seemed cognizant of the fact that the Otherside mint was going to attract sizable traffic. In part to prevent a gas war (like the one that ultimately ensued), Yuga restricted minting abilities to users who identified themselves via a formal verification process. Yuga also created a limit of two “Otherdeed” NFTs per each preapproved wallet.
These gating tactics might’ve eased network traffic somewhat, but Yuga also played a hand in increasing congestion by, at the last minute, forgoing its typical Dutch auction format. In a Dutch auction, Yuga’s Otherdeed NFTs would have started at one price and then dropped lower over time until the supply ran out.
While ditching the Dutch auction was framed by Yuga as a way to make things more equitable, it also turned the mint event into a mad dash where everyone was trying to mint at the same time.
In light of Yuga’s poor planning and shoddy engineering, Yuga’s sudden suggestion that it might pivot to its own blockchain made some onlookers suspicious. Crypto Twitter quickly grew rife with speculation (without evidence) that Yuga intentionally clogged up the Ethereum network in order to justify a move away from the network.
Yuga wouldn’t be the first major NFT company to spin out of Ethereum onto its own blockchain.
This weekend’s events were particularly reminiscent of a similar incident in 2017 which saw CryptoKitties – the first NFT project to gain significant traction on Ethereum – grind the Ethereum network to a halt as a result of high demand.
The creator of CryptoKitties, Dapper Labs, has since launched the Flow blockchain in order to scale its NFT gaming empire.
The most notable NFT company to leave Ethereum for its own chain is Sky Mavis, which launched the Ronin network in order to handle the transaction volume of its play-to-earn gaming juggernaut Axie Infinity.
In order to scale, Ronin appears to have made sacrifices to security and decentralization that enabled hackers to siphon over $600 million away from the network in March.
Given the (much maligned) centralization of Flow and Ronin relative to Ethereum, Yuga’s most vocal critics feel the company might’ve felt the need to front-run criticism that would come if it launched its blockchain.
While Yuga’s screwups were immense, it’s hard to believe they were premeditated.
A less cynical interpretation – the one Papper subscribes to – is that Yuga simply put the blame on Ethereum as a way to save face.
“I don't believe that Yuga would leave $100 million to $150 million on the table for a marketing stunt. … The rumors circulating that this was intentional and done to promote a new chain are incorrect,” Papper said.
While it is probably fair to criticize Yuga for its apparently poor engineering practices, Papper notes “gas optimization standards are still emerging.” It is possible (albeit embarrassing) that Yuga’s engineers merely screwed up.
Yuga also did seem to anticipate demand for the mint by requiring verification and originally planning a Dutch auction, and it’s possible they really did believe changing to a fixed-price model would’ve increased equity without spurring a gas war.
Finally, there’s not even any guarantee that Yuga (or its DAO) will build out its own chain when all is said and done. Ultimately, it wouldn’t be surprising to see Yuga move over to an Ethereum developer-friendly blockchain that already exists like Polygon or Avalanche. (Given how the Otherside smart contracts were engineered, it’s hard to imagine people would trust a Yuga-made chain anyway.)
It’s been a while since Ethereum faced a slowdown of this magnitude, and Yuga certainly made mistakes in the lead up to the Otherside launch. Still, it’s hard not to view this past weekend’s debacle as yet another example in a long list showing that Ethereum desperately needs to increase its transaction capacity.
Read more: Ethereum’s Rollups Aren’t All Built the Same
The much-anticipated Merge, which will soon turn Ethereum into a proof-of-stake network, will not, at least in the short term, have much of an impact on the network’s throughput. The shift to proof-of-stake will improve the environmental impact of Ethereum, but it isn’t expected to have much of an effect on gas fees or network speeds.
Sharding, an Ethereum upgrade that could theoretically improve upon these aspects, was delayed in favor of expediting the switch to proof-of-stake. For now, it doesn’t look as if sharding will be coming anytime soon.
The main way the Ethereum community is currently working to scale is through layer 2 rollups, such as Optimism and Arbitrum, which process transactions on separate blockchains before bundling them up and passing them back down to Ethereum.
Though rollups have experienced growth over the past year, they’ve yet to reduce prices to the level of chains like Solana and Polygon (which is building out its own rollup). Unless layer 2 solutions manage to expand their developer communities and userbases, Ethereum will continue to see more teams like Yuga running for greener pastures.
The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on Eth 2.0 metrics.
Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
FIFA has selected Algorand to be its official blockchain platform.
- WHY IT MATTERS: On May 1, FIFA President Gianni Infantino and Algorand founder Silvio Micali announced that Algorand will provide a blockchain-supported wallet solution for FIFA and assist FIFA in further developing its digital asset strategy. Read more here.
Solana went dark and ceased block production for seven hours.
- WHY IT MATTERS: Solana processes an average of 2,700 transactions per second, but on the evening of April 30, millions of transactions bombarded the network each second. Consequently, network validators, which secure the network, ran out of memory and crashed, according to Solana developers. This is not the only time Solana has suffered from several hours of downtime due to a flood of transactions. Read more here.
Jane Street borrowed $25 million in USDC via DeFi marketplace Clearpool.
- WHY IT MATTERS: Jane Street, a prominent quantitative trading firm, dived further into decentralized finance (DeFi) by borrowing $25 million from BlockTower Capital. This is the first time a major institution on Wall Street borrowed on a DeFi protocol, according to Clearpool. Jane Street’s move to borrow USDC follows their investment in Bastion, a decentralized lending protocol built on the Near blockchain. Read more here.
Rari Capital and Fei Protocol lost more than $80 million in an attack.
- WHY IT MATTERS: On April 30, the DeFi platforms suffered a loss of more than $80 million in funds. According to smart contract analysis firm Block Sec, the root cause of this attack was a reentrancy vulnerability. The protocols have paused borrowing globally to mitigate further damage and are offering a $10 million bounty to the exploiter with no questions asked if they return the funds. Read more here.
Factoid of the week
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