The increasing popularity of decentralized finance (DeFi) has brought new attention and optimism to the cryptocurrency sector. The total value of all protocols rose from $ 1 billion to $ 59 billion in less than a year, and the top 5 platforms accounted for $ 24.33 billion in total.
Rising gas charges were one of the most noticeable results of increasing interaction with DeFi protocols. Currently, the Ethereum Network (ETH) hosts the majority of the top DeFi projects. Gas fees have been rising steadily since November 2020, peaking on February 23 when the average transaction cost hit 373 gwei, which is roughly $ 11.72 at the current price of ether.
Since February 23, fees have decreased 65%, with the average cost dropping to 131 gwei on March 3. Data shows that fees below Gwei 70 are offered at certain times of the day.
DeFi deals fell as the market corrected
A possible source for the falling gas charges in the last few days is the daily DEX (decentralized exchange) volume.
Data from Dune Analytics shows that trading volume in DEXs has declined from a high of $ 4.35 billion on February 23, and DEX’s 24-hour daily growth metric fell 50% on March 3rd.
Fees have been falling in recent days, according to Connor Higgins, a data scientist at Flipside Crypto, but instead of attributing them to a specific cause, Higgins said the high fees on Feb.23 were an outlier compared to the total average over a longer period of time .
“On average, fees have come down, but it looks more like they’ll normalize after a day of unusually high fees.”
As can be seen from the graph above, gas charges were significantly higher than average between February 22nd and 23rd, when network congestion increased due to a market-wide sell-off that saw BTC price drop 23.6% and altcoin prices also strongly corrected. After the market stabilized, gas charges returned to their normal average.
Rising NFT transactions are clogging the Ethereum network
Those using the Ethereum network might have expected a more noticeable drop in gas fees as DeFi transactions fell. But this was not the case. One reason rates remain high could be the recent surge in activity in the non-fungible token (NFT) sector.
As more and more NFT projects start and hold auctions, the high transaction costs and network congestion on the Ethereum network are likely to persist until a fully integrated scaling solution is implemented.
Over the past two months, Layer 2 solutions and protocols have emerged with cross-chain bridges to Ethereum such as Polygon and Binance Smart Chain, and many projects are migrating to these platforms as the best short-term solution for high fees.
Projects like Aavegotchi and SushiSwap have shown how effective these networks can be after their recent integration with Polygon, and it’s likely that other NFT and DeFi projects will follow, as transaction costs and speeds are superior to Ethereum.
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