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DeFi popularity driving Ethereum gas prices higher

DeFi popularity driving Ethereum gas prices higher

As DeFi popularity soars, so does the Ethereum gas prices. The congestion on the Ethereum network in reaching stratospheric levels on the backdrop of an increased DeFi activity. Median gas prices are posting new all-time highs every day despite a drop in the number of active ETH addresses.

Galssnode data suggests that around 40 percent of the gas transactions are consumed by the DeFi protocols. The congestion increases further as a result of stablecoin projects, and arbitrage bots. The cost of Ethereum transactions is touching new highs as the scale of on-chain operations soars.

Ethereum gas prices are going through the roof

As per the latest report released by Glassnode, the increasing activity on DeFi protocols is the main contributor towards rising Ethereum gas prices. The gas price surge is making it difficult for many old-timers to conduct ETH transactions. The total daily fees touched a new high of 17,000 ETH per day – representing a new all-time high.

DeFi popularity driving Ethereum gas prices higher 1
Ethereum Total Fee Volume – by Glassnode Studio

Median Ethereum gas prices are going through the roof and trading above 200 Gwei. The sharp rise in Ethereum network usage helped Gwei touch 217 level. Additionally, Etherescan gas monitor suggested a 350 Gwei gas price to process transactions within 20 seconds.

These are towering figures considering that ETH transactions were a few months ago known to be economical. High Ethereum gas prices are coming at a time when the total Ethereum network hashrate is also touching the ceiling. Daily active wallets on the network are on a decline as a result of the soaring transaction fees.

DeFi consumes 40 percent of gas on Ethereum

The burgeoning DeFi is consuming a significant portion, 62 percent, of the total gas consumption on the network. Uniswap and decentralized exchanges are the foremost consumers of this gas consumption. The hype in the DeFi sector is relentless, and daily DeFi developer activity is also rising sharply.

DeFi protocols are gas-heavy since they do not perform single token transactions. The transactions are complex and often involve intricate smart contracts that consume more gas. The traffic on the network increases significantly due to various Ponzi schemes and arbitrage bots. Combining all these factors, it seems like Ethereum gas prices will not be coming down anytime soon.

Gurpreet Thind

Gurpreet Thind

Gurpreet Thind is pursuing Masters in Electrical Engineering at University of Ottawa. His scholarly interests include IT, computer languages and cryptocurrencies. With a special interest in blockchain powered architectures, he seeks to explore the societal impact of digital currencies as finance of the future. He is passionate about learning new languages, cultures and social media.

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