Uniswap Activity Sends Ethereum Gas Fees Sky High
The issue of high Ethereum gas prices isn’t going away anytime soon. Just last month, total daily fees on the Ethereum network managed to reach an all-time high of $8.6 million.
Following a brief respite from high charges, the latest data from coinmetrics.io, for August 31, 2020, shows an alarming trend back towards that all-time high. Total daily fees for the end of last month reached $8.2 million.
Considering the activity that has taken place since then, it would be no surprise if the all-time high gets topped in the near future.
Ethereum daily gas fees. (Source: coinmetrics.io)
In line with expectations, this is a pattern repeated for average transaction fees. This time, the latest data shows average transaction fees hit $11.61 yesterday. While some way away from the all-time high of $14.58, set on September 2, 2020, it’s still an unacceptable part of the ERC-20 ecosystem.
More pressing than that, the situation poses serious questions about the sustainability of the Ethereum network.
Uniswap Airdrop Seen as a Kind Act of Generosity
Many blamed the mania surrounding DeFi for the high charges. In particular, the network activity that arose from the glut of newly launched tokens during that period.
With that in mind, things took a turn for the worse on Wednesday when decentralized exchange Uniswap surprised the community with the launch of their new $UNI governance token.
The firm has allocated 150 million tokens for distribution by airdrop. Each address that interacted with the Uniswap V1 & V2 protocol, before September 1, is eligible to claim 400 $UNI.
“Uniswap owes its success to the thousands of community members that have joined its journey over the past two years. These early community members will naturally serve as responsible stewards of Uniswap.”
The move was widely seen as a generous act on the part of Uniswap. Many praised the team for sharing their financial success with early adopters.
Amazon never gave you AMZN for buying books
Google never gave you GOOG for doing searches
Facebook never gave you FB for setting up a profile
Uniswap is giving you UNI for contributing liquidity
That’s the difference
— Ryan Sean Adams – rsa.eth 🏴 (@RyanSAdams) September 17, 2020
What’s more, it had the effect of stealing thunder from rival DEX Sushiswap, who was, up until that point, back on the ascendency following a change in management.
Following a deep selloff on the launch, the price of $UNI recovered. At the present time, one $UNI is priced at $5.16.
Uniswap 30 minute chart with volume. (Source: UNIUSDT on tradingview.com)
Uniswap Contracts Dominant Ethereum Network Activity
Despite Uniswap’s act of generosity, the effect on gas fees has been catastrophic.
Uniswap contracts account for four of the top 10 gas guzzlers on the Ethereum network. This includes the top spot, where the Uniswap V2 contract accounted for almost a quarter of the total gas used in the last 24-hours.
Top 10 gas guzzling contracts on the Ethereum network. (Source: etherscan.io)
The upshot of this situation is a terrible and costly experience for Ethereum users. Aside from high charges, many have vented their frustrations over stuck transactions, even having paid for the fast option.
This Uniswap thing has taught me…
Ethereum is awful to use for day to day transactions. I still have transactions ‘queued’ even though I have paid for ‘fast’ gas lol
I’m not meant for this DeFi craze. Just give me SIMPLE!
— They Call Me Jongo “I ♥️ CTP & HIVE 🐝” (@Jon_G_Olson) September 17, 2020
Solutions such as using layer 2 protocols, or waiting for ETH 2.0, doesn’t fit with the way the majority of people use the Ethereum network now. With that in mind, how long can Ethereum carry on like this?
New hardware wallet feature that prevents Bitcoin dusting attacks
Nano S and Nano X maker Ledger recently announced an upgrade to its software suite that will offer better privacy and control over virtual currency transactions
The new feature, Coin Control, is designed to help prevent dusting attacks. Dusting attack refers to the illegal activity where an individual sends small amounts of Bitcoin to a wallet to break the user’s privacy for advanced attacks.
According to the announcement, the feature will give users the option to change transaction settings for more privacy or optimal fee usage. The wallet maker explained that Coin Control makes use of the ability to manage hierarchical deterministic wallets or multiple different Bitcoin addresses.
Users will have the option to choose the addresses they want to use for transfers. Previously the default First-in, First-out approach of automatically using the oldest address was used.
This new method is crucial as it’ll prevent any external parties tracking the transactions through dust- tiny amounts of BTC that are typically worth less than the transaction fees. The dust can be used to track a bitcoin holder since these tiny unspent transaction outputs (UTXOs) can build up. The most recent significant dusting attack happened to Litecoin users in August last year.
Ledger now gives users the option not to use this tiny UTXOs through the Coin Control feature. The company added, “As such, they cannot track any movements. In short: it can be a game-changer when it comes to your privacy.”
The new version 2.11.1 of Ledger Live, launched on September 15, comes with the Coin Control feature and a few other upgrades.
Some of the other features that will be present on the software upgrade include an optimization of the network fee structure to save money. This will be achieved by allowing users to select UTXOs that have a higher value, consequently reducing the transaction’s byte size.
Users that prefer to keep payments separated will also love the upgrade as it features the ability to designate specific addresses for certain transfers.
Stop F***ing Around With Public Token Airdrops in the United States
Back in 2017, I was the chief operations officer of an enterprise blockchain startup. By all accounts we were a reasonably successful early stage company; we had built prototypes on our permissioned Ethereum Virtual Machine for a range of banks including Deutsche Bank, Barclays and Credit Suisse. SWIFT built its first prototype blockchain system using our software. Few VCs were interested.
Often, in different meetings with different firms in different countries, all would ask the same question:
“So. Are you doing a token?”
My response was uniform. “Of course I’m not doing a f*[email protected]&ng token, you brain-dead savages,” I would think, before politely responding something along the lines of “it is my considered opinion that the current practice of raising funds via direct sale to the public is a violation of securities law.” Not that anyone cared, whether they be shiny new VCs or the old and unexciting VCs already in my cap table. After closing a bridge round, my own VCs decided that, indeed, a token sale would be in the company’s future; I left the company to do other things (namely, re-qualify in the U.S.), and the company raised more money.
Preston Byrne, a CoinDesk columnist, is a partner in Anderson Kill’s Technology, Media and Distributed Systems Group. These opinions are not legal advice, and do not represent the position of his law firm, partners, past or present clients, or itinerant mobs of angry marmots.
In the end, the company didn’t wind up selling any tokens. But at least I got the satisfaction of being right about the whole don’t-sell-tokens-because-you-will-get-dinged-by-the-regulator thing well ahead of time. Back in the heady days of 2014, my friend and expert crypto historian Tim Swanson wrote this op-ed in CoinTelegraph, where he quaintly referred to ICO tokens as “cryptoequity,” per the lingo adopted by Joel Dietz and one of the earliest investment-projects-on-the-blockchain, a decentralized crowdfunding platform called “Swarm.”
Same again in 2017, when I cautioned that the new SAFT note structure – which divided a token issuance into two steps, one private sale and later one public distribution – meant “the SEC can’t nail a company for issuing a SAFT… but the yet-to-be-created tokens remain fair game,” which is exactly what happened when Judge Castel ruled, in Securities and Exchange Commission v. Telegram, Inc. that the tokens and the ostensibly legally-compliant “GRAM Purchase Agreements” pursuant to which they were sold constituted a single “scheme” for the purposes of the Securities Act, and therefore the private placement exemptions Telegram thought applied to its offering fell away.
In each of the great shitcoin booms of the past – 2014 and 2017 – there have been voices that cautioned crypto entrepreneurs to tread carefully and those who have told them to charge ahead. Of the 2014 vintage, only a handful of schemes, ones which were obviously fraudulent (e.g. PayCoin) wound up being prosecuted; the PayCoin case led to a multimillion dollar settlement with the SEC and jail time.
Others, like Ethereum, skated; not because they weren’t securities offerings when made, but, I suspect, and as Bill Hinman hinted, because the SEC viewed further action as being akin to closing the stable door after the horse had bolted.
The 2017 boom was met with a somewhat swifter, and broader, response. A number of small schemes like Paragon and Airfox, and DEXs like EtherDelta, were initially targeted in late-2018, with bigger fish like EOS fined in 2019. The picture was confused considerably when Director Bill Hinman made his speech When Howey Met Gary (Plastic) in June 2018 that seemed to imply that functional decentralized networks would be exempt – a view that was later invoked by Kik in defense to the SEC action brought against it nearly a year later, apparently without success. That enforcement wave continues: only this week, Unikrn was ordered to pay a $6 million penalty and shut down its coin, and numerous other coin issuers from 2017 are doubtless still within the SEC’s crosshairs or negotiating their settlements.
Now, again, in 2020, a new generation of entrepreneurs believes it has found the proverbial Philosopher’s Stone that will turn shitcoin lead into gold. Members of the “crypto bar” warn the community not to trust lawyers who dare to suggest that this new brand of shitcoin is categorically out of bounds. Crypto-Twitter is abuzz with the usual questions about whether flogging coins for fun and profit that allow voting rights on a DEX is or is not a security.
Whether this is the case will, as with all things, depend on the facts as they fit within the three-prong test from SEC v. W.J. Howey and the precedent that follows it. However, generalizing greatly, more often than not, a coin that airdrops or is pre-sold in vast quantities to American citizens is going to attract attention from American regulators and, as encountered in the wild, is likely to satisfy the Howey prongs.
See also: Redel/Andoni – DeFi Is Just Like the ICO Boom and Regulators Are Circling
As this boom expands, there will be shitcoin apologists in the crypto-legal or crypto-legal-adjacent community, people without clients, who assuredly shout from the rooftops that ‘this time it’s different!’ in long Twitter threads optimized for engagement. Other cheerleaders will say that entrepreneurs are leaving money on the table by not doing a Uniswap-style airdrop to the American public, and what a loser you are if you steer clear! Enjoy staying poor!
The facts are these: not all tokens are securities; this we know from the release of several no-action letters to that effect. But as a practical matter, many, if not most, of them will be. No mental gymnastics, no think-pieces, no cryptographic magic dust, no novel naming conventions, and no “gotchas!” can work around the fact that courts work with economic reality, and economic reality on this most recent DEX token airdrop looks a lot like an investment contract.
It is also true that there are, without a doubt, countries in the world that do countenance token offerings. Go there. U.S. securities laws are not meant to restrict the sale of tokens in those places. In the wake of the Telegram case, however, there can be no doubt – none whatsoever – that there are serious restrictions on engaging in token sale activity in the U.S., which includes airdrops, and which also include airdrops relating to decentralized exchanges or DEXs.
See also: Preston Byrne – Telegram’s TON Was Built on Sand. Its Failure Isn’t All Bad For Crypto
Many of us would prefer this not be the case. I count myself among them. A liberal token offering regime in the U.S. would create much more legal work for cryptocurrency-literate transactional lawyers. That this is the case may result in American startups having less adoption and less access to capital.
This notwithstanding, it is the case, and if you want to avoid spending years in litigation with the federal government, I suggest approaching this market with a cool head and not giving into the temptation – or pressure – to “do something” to maximize your exploitation of it.
The SEC may not move today, nor tomorrow, nor even a year from now in relation to any particular issuance. Nor is there a requirement that cash change hands for the issuance to be deemed a sale. The SEC’s guidance has cautioned that so-called “air drops” can fall within this rubric. Consideration is not just money – it can be work, effort, and the attendant increase in value that arises from it.
The SEC’s slowness – the fact that they’ve done nothing about Uniswap right now – is not a waiver of its enforcement powers, and being on the receiving end of one of their subpoenas is no less painful simply because they waited a few years to hit you with it.
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