ViaBTC Capital | Reasons Behind Solana’s Frequent Downtime: Design Flaws in the Gas Economy
June 27 2022 - 4:02AM
NEWSBTC
What is the gas fee? In the blockchain world, the gas fee is a fee
that users have to pay to the blockchain network for each
transaction. For example, when a user makes a transfer on Ethereum,
miners must package his transaction and put it on the blockchain to
complete the transaction. This process consumes the computing
resources of the blockchain, and the fee paid to miners is called
the gas fee. Gas economy Imagine that each public chain is a
society or a city, and gas would be the currency that users need
for various activities in the city, and the economic designs of gas
have far-reaching impacts on the public chain’s future development.
Today, we will illustrate the significance of the gas economy from
the perspectives of performance and value capture. Performance –
The frequent network congestion of Solana In early May, Solana’s
mainnet lost consensus, and block generation was suspended for 7
hours. The mainnet was down due to the NFT minting of a new NFT
project. Users turned to bots for sending transactions as much as
possible to increase their success rate of minting. This led to 6
million transactions per second on the Solana mainnet, which jammed
the network. Moreover, as Solana transmits consensus messages as a
special transaction message between validators, the heavily
congested network also disabled the normal transmission of
consensus messages, eventually leading to the loss of consensus.
This is not the first downtime of Solana. Last September, the
public chain suffered a 17-hour downtime due to the massive trading
volume created by on-chain bots during the launch of the hit
project Raydium. A 30-hour Solana downtime incident happened at the
end of January 2022 when the BTC price plunged from $44,000 to
$33,000 during a market crash and created plenty of arbitrage
opportunities. Meanwhile, the liquidation/arbitrage bots on Solana,
which center on DeFi, kept creating massive transactions, which
resulted in network downtime. When comparing Solana to a
conventional IT system, we can tell that the downtime resembles a
DDoS attack. 「A DDoS (distributed denial-of-service) attack refers
to adding traffic from multiple sources to exceed the processing
capacity of a network so that real users would not be able to
acquire the resources or services they need. Attackers often launch
a DDoS attack by sending more traffic to a network than it can
handle or sending more requests to an application than it can
manage.」 Instinctively, many people would think that Solana’s
downtime is rooted in its public chain designs: the monolithic
design of Solana inevitably leads to downtime. At the moment,
mainstream public chains use two kinds of designs: the modular and
the monolithic. The modular architecture refers to a modularized
deployment where consensus, storage, and execution are implemented
separately so that the collapse of the execution layer will not
compromise the security of the consensus layer. At the same time,
mainstream designs adopted by Avalanche’s Subnet, ETH 2.0, and
Celestia’s Rollup can all diverge massive transactions. On the
other hand, although Solana as a whole is designed to enable fast
transactions, scalability and security were sacrificed. However,
the modular design of a public chain is not the key because
although the consensus stayed secure, the individual rollup could
still suffer from downtime when facing overwhelming transactions in
a very short period. In other words, the modular design just
lowered the systemic risks (e.g., a certain rollup could halt but
the rest can survive) for the public chain. The gas design is the
real reason behind Solana’s downtime, and more network downtime is
on the way if the design is not improved. – The gas mechanisms of
different chains The figure below shows the gas designs of three
mainstream public chains. On Solana, the gas fee is based on the
number of signatures. The more signatures a transaction uses, the
higher the gas fee. However, the maximum memory capacity of each
transaction is fixed, and so is the maximum gas fee per
transaction, which helps users easily calculate the cost of sending
massive transaction requests. Moreover, transactions on Solana are
not sequenced, which means that when the cost of sending massive
requests is lower than the profit (arbitrage, NFT minting, etc.),
users would use bots to send transactions on a large scale to
increase the likelihood of the execution of their transactions.
This is also the reason behind the downtime events that took place
on Solana. Ethereum and Avalanche share similar gas designs. Both
feature the base fee and the priority fee, which creates an
inherent sequencing issue because transactions with a higher
priority fee would be first executed. As such, although users can
still use bots to create massive transactions on Ethereum and
Avalanche, their transactions will not be executed no matter how
many requests are sent when the priority fee becomes insufficient,
and they have to wait in line. Considering the cost of gas, such a
design eliminates the possibility of network downtime arising from
massive transactions at the economic level. Source[1] – Improvement
by Solana Economic isolation has always served its purpose better
than methodological isolation. Solana has already started to build
its own Fee Market by introducing a concept similar to the priority
fee. Meanwhile, Metaplex, Solana’s NFT market, will also adopt a
new concept called Invalid Transaction Penalty, which means that
users will have to pay a fee for invalid transactions when minting
NFTs. Value capture Value capture is the reflection of a gas
economy via the market cap of the gas (the native crypto of the
chain). The market cap of a native coin is roughly determined by
two factors: cash flow and monetary premium. – Cash flow When it
comes to charging the gas fee, most public chains follow the same
approach: lower the gas fee as much as possible to attract users
from Ethereum. From the perspective of cash flow, such an approach
is unsustainable. Of the three mainstream public chains, only
Ethereum stands with a considerable net cash inflow, although the
network is still issuing more Ethers. If we consider additional
issuance as a type of subsidy, then the net expenditure of Ethereum
per day would be about $25.7 million if the annual issuance rate
stands at 3.21%. Solana and Avalanche, on the other hand, have an
income of $6,250 and $42,000 a day on average, with a daily net
expenditure of $4.6 million and $1.86 million and a yearly issuance
rate of 6.93% and 5.22%. The high net expenditure & high
issuance rate significantly dilute the market cap of the public
chain coins. Source[2] Let’s turn to the destinations of cash
flows. Under Ethereum’s current mechanism, the base fee is burned,
while the priority fee is offered to miners. Compared with the gas
burning and distribution mechanisms of Solana and Avalanche that
offer the gas fee to validators, the miner reward is a design that
compromises value capture. Ethereum uses the PoW design for block
generation, and most of the miners adopt a business model under
which tokens that have been mined are sold to cover the mining cost
(such as electricity fees and maintenance costs). Therefore, the
part of the gas fee paid to miners will most likely go out from the
ecosystem. It would be better to give the gas fee to validators
because the cost of running a node is not as high as operating a
mining factory. Since there are not significant ongoing operating
cost, validators are more likely to invest the rewards they’ve
received in the nodes, which makes the ecosystem safer without
diluting the value of the native coin. Burning fees might be the
most direct and effective way to capture valuee and benefits both
node stakers and token holders. In addition, MEV constitutes
another major source of revenue for public chains. According to
statistics from Flashbots, from 2020 to now, $600 million worth of
MEV has been paid to miners, which is a conservative estimate.
Source[3] – Monetary premium Monetary premium refers to the
appreciation of a public chain coin in terms of its practical value
and value storage. Most existing public chain coins are carrying
out massive issuance, which makes them poor value storage, and the
practical value forms the backbone of their market cap. The growth
of the ecosystem of a public chain coin will create scenarios where
it can be used as a payment method. For instance, most NFT
transactions are settled with public chain coins. Meanwhile, most
emerging public chains also consider the practical value as the
primary means of appreciation, which is why they have set
negligible gas fees to attract traffic and new users. Meanwhile,
some public chains have built foundations worth hundreds of
millions of dollars to encourage more developers to build DApps in
their ecosystem. The logic behind such an approach is to make big
investments to attract users in the initial stage and try to
recover the cost later. Conclusion To sum up, the gas design of a
public chain will have profound impacts on the future development
of a public chain, and a poor design could lead to poor value
capture and even performance bottlenecks. When evaluating a public
chain project, we can also get a rough picture of its development
strategy and future growth through its gas designs. [1]
https://docs.solana.com/implemented-proposals/transaction-fees#congestion-driven-fees,https://ethereum.org/en/developers/docs/gas/,https://docs.avax.network/quickstart/transaction-fees/
[2]
https://cryptofees.info/,https://moneyprinter.info/,https://solanabeach.io/
[3]
https://docs.solana.com/implemented-proposals/transaction-fees#congestion-driven-fees,https://ethereum.org/en/developers/docs/gas/,https://docs.avax.network/quickstart/transaction-fees/
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