Ponzis and marketing schemes are among the biggest gas guzzlers on Ethereum right now

Ponzis and investment marketing schemes appear to be amongst the biggest spenders of transaction fees on Ethereum today.

On Ethereum, users need to pay a transaction cost known as “gas fee” to process a computation. The fee, denoted in Gwei (one ETH equals one billion Gwei), is set by miners and driven by the degree of transaction demands on the blockchain.

Since the beginning of the year, Ethereum’s average gas prices have seen significant growth, rising from around 10 Gwei in January to 49 Gwei at the time of writing, according to market data provided by Etherscan. In March, especially, due to the violent market swings and unusually high transaction demands, the gas prices surged to over 100 Gwei at one point before settling down around the current level. Right now, ETH Gas Station recommends 35 Gwei for “fast” transactions and 30 Gwei for “standard” transactions.

The increase in gas prices has put a number of suspect investment schemes on the top of the list in terms of ETH transactions. These projects promise unnaturally high-interest rates and generally see mass usage regardless of what the gas prices are. Moreover, they are often poorly coded and do not take into account the fluctuations in gas prices. As a result, while legitimate platforms are negatively affected by the jump in gas prices, suspected scams continue to see a high number of transactions processed through their networks.

In fact, out of the top five players of ETH Gas Station’s leadership board, three are attributable to Ponzis, pyramids, and similar schemes. MMM, for example, is a Ponzi-like investment scheme that now accounts for at least 8.7% of all gas usage. With approximately 2,150 ETH spent and $433,000 gas paid in the past 30 days, it is ranked second on the list just behind Tether USD, which saw 7,250 ETH of transactions and paid around $1.46 million of gas fee in the past month. SmartWay Forsage uses the “matrix marketing” formula whereas Million Money 2.0 uses a more traditional affiliate marketing and pyramid-like structure.

“This is a repeat of what happened around the end of 2017,” Ethereum co-founder Vitalik Buterin told The Block in an email. “Basically, when transaction fees go high, the transactions that are most likely to remain on-chain are the ones that are high perceived-value-per-transaction for the senders.”

In other words, less profitable projects will struggle to stay on-chain. In contrast, platforms promising high financial returns and lucrative applications like token trading and gambling will find it easier to survive. Unfortunately, Buterin said, this also means that scams are more likely to adapt to the new economic environment.

There is no quick fix to the problem, said Buterin, since it is hard to reach out to scammers and victims with whom the Ethereum community is not in direct connection.

“Deterring scams outright is hard,” he said. “It's basically a matter of public education, and often this is tricky because the scams happen in foreign communities that we do not understand well or have close links to. Theoretically, wallets could warn or block some applications. Metamask already does this with many giveaway sites for example.”

Solutions to high gas prices?

The rise in gas prices has impacted a number of decentralized finance (DeFi) projects.

For example, decentralized exchange dYdX was forced to temporarily increase the minimum trade size to 40 ETH on March 12 in response to the fee spike before adjusting it back to 0.1 ETH. On Thursday, the exchange announced in a tweet that it has again changed the minimum trade size “due to high gas prices on the Ethereum network.” The current size limit is 1 ETH.

Decentralized exchange IDEX, which spent $113,000 on gas fees in the last 30 days, faces the same challenge.

“With the growing number of applications and use cases, it seemed like only a matter of time until ETH gas prices started to rise more consistently,” said the exchange’s CEO Alex Wearn. He told The Block that IDEX is actively looking for new measures to deal with Ethereum’s rising gas prices.

Right now, developers are looking at different approaches to mitigating the rising gas prices.

EIP 1559, for instance, was proposed in April 2019 as a potential short-term solution. Under the current fee model, users submit their transactions along with particular gas prices, and then miners can pick the transactions with the highest bids. This has led to problems like overpayment and volatile transaction fees.

The proposed mechanism would introduce a base network fee that is constantly adjusted based on network demands, making transactions less costly and offering short term usability relief for the network.

In the long term, however, it comes down to improving the blockchain’s scalability and creating more space for applications. According to Buterin, this is why Ethereum developers are focusing on building mechanisms like rollups and sharding.

“For example, there is no reason why all ERC20 trades, including the USDT trades that have been recently taking up high fees, cannot move to a rollup like Loopring,” he said.