> For the complete documentation index, see [llms.txt](https://hedgehog-protocol.gitbook.io/main/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://hedgehog-protocol.gitbook.io/main/how-it-works/on-chain-costs-prediction-markets.md).

# On-chain costs Prediction Markets

### On-Chain Cost Prediction Markets

Every blockchain operates on a simple economic truth: **blockspace is scarce**. Each block can only contain a finite number of transactions, forcing users to **bid for inclusion** through gas prices. This bidding system turns every block into a **micro-auction for computationm** a constant balancing act between supply and demand.

Despite being the heartbeat of blockchain activity, this market for blockspace has never had its own **financial layer**. While tokens, yields, and liquidity have all been financialized, the **cost of using the network itself** has remained unhedged, unpredictable, and opaque. Hedgehog changes that by introducing the world’s first **prediction markets for on-chain costs**.

#### A Market Built on Usage, Not Tokens

Hedgehog isolates the variable that defines the blockchain economy, **the cost of transacting and interacting with financial instruments,** and transforms it into a **tradable market primitive**.\
\
Instead of delivering or renting real blockspace, Hedgehog mirrors it synthetically, tracking only the **price behavior of network activity**: gas fees, priority fees, funding rates, and incentives.

These data points become **predictive markets**, where participants can trade expectations about future costs, whether gas will rise or fall, how MEV pressure will evolve, or when congestion will peak. Each position reflects a live view of blockchain demand and the macro conditions driving it.\
\
How It Works

<figure><img src="/files/AwNpk9pRpoGXQvr8gvVk" alt=""><figcaption></figcaption></figure>

Hedgehog’s on-chain cost markets are **cash-settled prediction markets** designed around live blockchain data.\
Each market tracks a **specific cost variable** — for example, *average Ethereum gas price* over the next 15 minutes, and lets participants trade on whether it will move up or down within that window.

**1. Market Creation**

* Smart contracts generate markets tied to time-based cost intervals: hourly, daily, or per-block windows.
* Data oracles continuously feed **real-time gas prices and block metrics** into these contracts.

**2. Position Taking**

* Traders can **go long or short** on a given outcome, for example, “gas will exceed 80 gwei in the next 10 blocks.”
* Paymasters or rollups can use these same markets to **hedge exposure**, buying positions that profit when gas rises (offsetting their real-world expenses).

**3. Continuous Pricing**

* As new blocks are produced, the market dynamically adjusts prices to reflect the latest gas trends and pending transaction volume.

**4. Resolution & Settlement**

* When the time window closes, the market references on-chain cost data to determine the actual outcome.
* **Winning positions are paid out automatically**, while a **small trading fee** applies only to profitable positions, ensuring fairness and liquidity sustainability.

Through this mechanism, Hedgehog transforms raw blockchain data into a **financial heartbeat,** every block generates a measurable, tradable signal about the network’s current and expected activity.