Odaily Frontline | DeFi Has Pushed Ethereum Transaction Fees to Highest Since 2018, Report Says

念银思唐

2020-07-22 13:57 (UTC+8)

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Transaction fees rose more than 30% last week.

Summary:

Odaily Translator |

Summary:

- According to a new report from Coin Metrics, DeFi is causing Ethereum transaction fees to rise.

- Last week, Ethereum transaction fees rose by 30.3% due to increased demand.

- Coin Metrics believes the fee increase could make the network "prohibitively expensive" to use.

A "State of the Network" report released today by crypto data firm Coin Metrics found that a sudden surge in demand for DeFi products has continued to drive up the price of Ethereum transaction fees. But Coin Metrics found that in some ways that might actually be a good thing.

Transaction fees are fees charged by the Ethereum network each time a transaction is executed. Now, according to data provided by Coin Metrics, the average fee on Ethereum is close to $0.40, the highest level since mid-2018.

Why do you think it is a good thing? High transaction fees “generally indicate high demand for block space and generate more revenue for miners who secure the network,” the firm wrote in the report.

Coin Metrics attributes the increased demand to the booming DeFi market. DeFi refers to non-custodial financial services such as lending protocols or decentralized stablecoins. Most of the top DeFi protocols are based on Ethereum, and its total value of locked assets (TVL) has exceeded $3 billion, and the growth rate is amazing-just two weeks ago, the TVL of the DeFi protocol was only $2 billion.

To further support its view, Coin Metrics pointed to how much ETH was being moved each day — it found that more than 1 million ETH ($243.7 million) were moved each day for most of July, well above normal levels .

Furthermore, according to the Coin Metrics report, despiteCloudflare went down on July 17th, causing some popular cryptocurrency wallets to crash, but ethereum transaction fees still rose 30.3 percent over the past week, indicating increased demand.

During the same period when Bitcoin transaction volume fell by 5%, Ethereum transaction volume increased by 5.5%. This is all thanks to the “continued rapid growth of DeFi adoption.”

But make no mistake: High transaction fees aren't all good news. This makes the network “prohibitively expensive” to use, according to Coin Metrics.

Ethereum co-founder Vitalik Butterin (V God) said on Twitter today that high fees have also made the networkbecome less safe. Vitalik cites a Princeton University paper that explains how high transaction fees create "rich" blocks that are "attractive" targets for selfish miners. Proposals for fee markets such as EIP1559 address this issue, which explains why this EIP is so important.

DApps such as games and collectibles will be hit the hardest by high transaction fees because they "rely on a high volume of low-cost transactions," according to Coin Metrics

Ethereum’s high transaction fees suggest that the network is currently not equipped to handle high volumes of activity, limiting the network’s reach.

Ethereum’s network utilization has hovered around 95% for the past few months. If it hits 100%, the network will stagnate, become prohibitively expensive to use, and be useless to DApps that rely on it for micropayments.

And DeFi is not the only application that will increase transaction fees. For example, massive Ponzi schemes can also push the network to its limits.

Odaily Note: On May 23, The Block published an analysis article saying that Ponzi schemes and pyramid schemes are now one of the biggest consumers of Ethereum transaction fees. This is due to rising gas prices that have put pressure on legitimate projects, but have barely affected profitable platforms including fraud. Vitalik Buterin, the founder of Ethereum, said that while measures like EIP 1559 are aimed at easing the gas price problem in the short term, the real solution lies in improving the scalability of Ethereum.

Previously, ethgasstation.info data showed that five of the top seven projects with the most Gas fee consumption on Ethereum were suspected of Ponzi schemes. Among the top seven gas consumption projects, except for Tether USD and IDEX, the other five are suspected to be funds, namely MMM, SmartWay Forsage, Million Money 2.0, Easy Club and BEB. In the past 30 days, the total gas consumption on Ethereum was about 32,600 ETH, and the gas consumption of these five projects accounted for 15%.

Currently, 6.44% of transactions in Ethereum’s most recent 1,500 blocks were executed by the Ponzi scheme Forsage. On July 22, Philippe Castonguay, the developer of Ethereum, tweeted that the value of ETH on Forsage was close to 100 million U.S. dollars, and its Gas consumption accounted for nearly 10% of the daily Gas usage. At the beginning of the month, ForsageIdentified as a Ponzi scheme by the Philippine Securities and Exchange Commission, and its transaction activity in June ranked first on Ethereum.

A few weeks ago, Forsage executed about 20 percent of its trades. In contrast, the liquidity protocol Uniswap V2, one of the most popular DeFi DApps on Ethereum, accounted for only 5.06% of the transaction volume.