What if you could monetize Ethereum upgrades?
Ethereum’s gas fee landscape has undergone various shifts with upgrades like EIP-1559, The Merge, Dencun, and the forthcoming Pectra upgrade.
Each has tweaked how fees work, creating both challenges and opportunities for profitability.👇
We have introduced a unique concept in DeFi...
• The ability to trade transaction fee volatility, turning high transaction costs into a source of profit.
Powered by the Modular Synthetic Blockspace, onchain costs could become goldmines for players like paymasters, Layer 2 (L2) solutions, and traders.
Here’s how Hedgehog Protocol could flip the script along with the latest upgrades:
1. EIP-1559 (London Hard Fork, August 2021)
It revolutionized gas fees by splitting them into:
• Base Fee + Priority Tip
Base fee, which adjusts dynamically based on network demand and gets burned, brought predictability to an otherwise chaotic auction system.
Arbitrage systems thrives here...
• It lets users analyze and trade on base fee fluctuations.
When demand spikes and base fees soar, Hedgehog could enable paymasters (sponsoring transactions under EIP-4337) or L2 operators to hedge against those costs, locking in profits by betting on fee trends.
*Which could be amplified by the leverage aspect.
2. The Merge (September 2022)
This update didn’t directly touch gas fees, swapping miners for validators in Ethereum’s Proof of Stake transition. However, it paved the way for scalability upgrades, indirectly influencing fee economics by shifting the network’s focus to efficiency.
For us, this is less about immediate profit and more about context: a stable validator ecosystem sets up a smoother runway for fee-related strategies as Ethereum scales. It’s the calm before the storm of opportunity.
3. Dencun (March 2024)
Dencun was the game-changer. With EIP-4844’s “blobs,” it offloaded data processing to L2s, slashing mainnet congestion and dropping fees dramatically.
To put things in perspective, average gas prices fell from 72 gwei to 2.7 gwei over the year.
This L2 boom hit our sweet spot.
Why?
‣ L2s still settle on Ethereum, facing base fee exposure.
‣ L2 operators could arbitrage between low L2 fees and mainnet base fee spikes, profiting from the spread.
Leverage kicks in here too!
• An L2 anticipating a fee surge could use the Modular Synthetic Blockspace to amplify its position, turning a small fee differential into a return.
• Even regular paymasters could sponsor cheap L2 transactions, hedge mainnet costs, and pocket the difference.
4. Pectra (Still in testing as of April 2025)
Details on Pectra are still kind of shady, but it mainly promises more efficiency tweaks by refining transaction processing and L2 integration.
For us, this is future fuel.
As Pectra fine-tunes gas dynamics, arbitragers could adapt – say, targeting new fee patterns or L2-mainnet interactions.
Leverage would again juice profitability, letting users scale their bets on how Pectra reshapes costs.
Study. Study Hedgehog. 💪