Proposal: A Self-Sustaining Gas Coverage Mechanism for the Fuel Ecosystem
Hey Fuel community! 
I’d like to share a protocol design we’ve been developing that addresses one of the most persistent friction points in blockchain adoption: transaction fees. By combining liquid staking with a novel gas coverage mechanism, we believe this approach can significantly enhance the user experience on Fuel while creating a self-sustaining economic model.
The Problem
Despite all the innovations in blockchain technology, transaction fees remain a major barrier to mainstream adoption. They create cognitive overhead for users, complicate UX design for developers, and sometimes make complex multi-step transactions prohibitively expensive. Even on efficient networks, the “pay-per-transaction” model introduces friction that’s absent in traditional web applications.
The Solution: Liquid Staking + Transaction Fee Coverage
The protocol introduces a system where users stake their FUEL tokens and receive both:
- Liquid staking tokens (stGAS) that maintain transferability and can be used in DeFi applications
- Tiered NFT membership that establishes gas coverage privileges
The core economic engine behind this approach is elegantly simple: the yield generated from staked FUEL is automatically directed to cover gas fees for NFT holders.
Share your thoughts: [Typeform Survey Link] (takes 5 min)
How It Works
The system architecture consists of three main components:
Staking Protocol: Users deposit FUEL tokens, which are staked on the network to generate yield. In return, they receive liquid staking tokens (stGAS) and a tiered NFT.
Gas Station Service: A specialized service that verifies NFT ownership and calculates gas coverage allowances based on the user’s stGAS balance and NFT tier. This service builds upon the work from Harsh in the “Fuel Station: Gas Paymaster on Fuel” proposal/project, please take a look a the the Fuel Forum research article:
Transaction Flow: When a user initiates a transaction, the Gas Station verifies eligibility and covers the gas fee from the yield-generated pool.
Self-Sustaining Economics
The beauty of this system is its self-sustainability. Unlike subsidized gas models that eventually deplete, this protocol creates a perpetual economic cycle:
- Staking generates continuous yield from network validation
- Yield is dynamically allocated between increasing stGAS value and funding gas coverage
- As more users join the system, both staking security and gas coverage capacity increase
- The allocation ratio adjusts automatically based on network conditions and gas prices
Benefits to the Fuel Ecosystem
This protocol creates numerous positive effects for the FUEL network:
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Enhanced User Experience: New users can interact with dApps without worrying about gas fees, creating a Web2-like experience with Web3 benefits.
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Increased Network Security: By incentivizing FUEL staking, the protocol helps secure the network through greater stake participation.
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DeFi Composability: The liquid staking tokens (stGAS) can be integrated into DeFi protocols, increasing capital efficiency across the ecosystem.
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Developer Adoption: Applications can leverage the Gas Station API to offer gas-free transactions to their users, reducing UX friction.
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Network Growth Flywheel: As more users stake, more gas is covered, attracting more users to the ecosystem.
Centralization Considerations
While the Gas Station component introduces some level of centralization, it provides significant benefits that outweigh the trade-offs:
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Transaction Speed: The Gas Station can verify eligibility and authorize gas coverage nearly instantaneously, maintaining the fast UX users expect.
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DeFi Integration: Through private API access, DEXs and other protocols can offer gas-free trading, critical for fast-paced financial applications.
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Gradual Decentralization Path: The protocol design allows for progressive decentralization as the ecosystem matures.
This approach leverages proven gas sponsorship techniques that have been successful in other contexts, adapting them to create a sustainable, yield-driven model.
NFT Tier System
The tiered NFT system serves multiple purposes:
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Gas Coverage Multipliers: Higher tiers provide increased gas coverage limits.
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Staking Incentivization: Users are encouraged to stake more FUEL to access higher tiers.
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Community Building: The tiered system creates natural community segments and status recognition.
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Governance Potential: In future iterations, the NFTs could carry governance rights proportional to tier level.
The NFTs are tied directly to staking amounts, with a mechanism to upgrade or downgrade tiers when users adjust their stake. This creates a fluid system that accurately reflects users’ contributions to network security.
Technical Implementation
The protocol builds on existing technologies in the FUEL ecosystem:
- Leverages FUEL network’s staking infrastructure
- Utilizes UTXO-based transaction model for gas coverage
- Implements rebasing mechanisms for liquid staking tokens
- Creates gas verification and calculation engines optimized for the FuelVM
Next Steps
We’re in the early stages of development and looking for community feedback on this approach. We believe this protocol could significantly reduce adoption barriers while strengthening the network’s security foundation.
Share your thoughts: Please take a look at the typeform and tell us about your experience and what you think:
[Typeform Survey Link] (takes 5 min)
What do you think about this approach? Would you use a protocol that covers your gas fees in exchange for staking your FUEL tokens? What aspects would you like to see refined or expanded?
Looking forward to your thoughts and suggestions!