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The turbulent May has ended, and neither Bitcoin (BTC) nor Ethereum (ETH) has recovered from its highs. While Chinese Bitcoin miners are still anxiously waiting for regulatory policies to clear mining farms, Ethereum miners using graphics cards have seen a "salary increase."
TheBlock data revealed that the total revenue of Ethereum miners hit a new record in May, reaching US$2.35 billion. Among them, on-chain transactions contributed US$1.03 billion in transaction fees to miners, accounting for 43.8% of the total revenue.
According to historical statistics, miners' on-chain transaction fee income has increased significantly since August last year, and once exceeded block reward income in February this year. The increase in transaction fees is strongly related to the trend of the expansion of the DeFi ecosystem on the Ethereum chain.
Although the price of ETH was halved in May, the ETH income of miners has increased. In particular, on May 19, when ETH fell sharply, the daily decline was 26%, while the ETH mining rewards and fees of miners across the network reached 74,502 ETH, setting a record high for the month. On that day, the asset market was highly volatile, and on-chain DeFi users frequently engaged in risk aversion, contributing a large amount of network fees.
In the past year, the network fee income brought by Ethereum to miners has gradually approached the mining reward income. In two months, the fee exceeded the mining reward. Making the fee one of the ways to capture the value of ETH is exactly what Ethereum’s transformation direction means.
Ethereum miners made a fortune on the 5.19 crash
On June 1, Binance showed that ETH closed at $2,551, down 41% from its historical high of $4,372 on May 12, and failed to recover the $3,000 lost at the end of May.
Despite price fluctuations, Ethereum miners who maintain the safe operation of the chain have not been harmed by the market turmoil. On the contrary, miners' income hit an all-time high of US$2.35 billion in May, an increase of 42% from the previous month's record.
Data from The Block shows that of the total revenue of the mining group of US$2.35 billion, block reward income reached US$1.32 billion and on-chain transaction fee income was US$1.03 billion. Both parts of income hit record highs, and the latter income accounted for 43.83% of the total revenue. After June last year, the growth rate of miners' income accelerated. Other record-breaking indicators include Ethereum's on-chain transaction volume and the number of active addresses. Data showed that in May, the ETH on-chain transaction volume reached more than 45 million times, an increase of 7% from the previous month and an increase of 69% from May last year. The number of active addresses on the network was more than 20 million, an increase of 14.6% from the previous month and more than double that of the same period last year.
Ethereum set new records in multiple indicators in May, which is related to the fact that ETH's price reached an all-time high that month, as well as the sudden crash that followed, especially the on-chain transaction fees that are part of miners' income. On May 12, when ETH's price was high, and May 19, when it plummeted, transaction fees reached the peak of miners' daily income. Trend of total daily ETH transaction fees in May
Data from TokenView shows that on May 12, the average transaction fee for a single transaction on the chain was $69.38, and the total transaction fee on that day exceeded $112 million. The entire network contributed more than 26,900 ETH in on-chain transaction fees. On May 19, the day of the crash, the average transaction fee for a single transaction was $71.77, and more than 30,000 ETH on the chain worth more than $100 million went into the pockets of miners.
In comparison, when ETH was at an extremely high price in May, the income from mining rewards denominated in US dollars was higher than the crash price on the 19th, but if the mining rewards were settled in ETH, the block reward at the time of the crash was 43,685 ETH, which was higher than the 39,829 ETH when the coin price peaked.
Regardless of whether the ETH price is high or falling, the miners' income from on-chain transaction fees will be guaranteed. This is undoubtedly related to the development of the DeFi ecosystem on the Ethereum network. The higher the demand for network resources from applications and users, the more congested the network will be, and the more substantial the on-chain transaction fees contributed will be.
The extreme market conditions on May 19th were an extreme manifestation of this. On that day, multiple lending agreements on the ETH chain faced liquidation. Users' concentrated loan repayments increased network usage, and when liquidation occurred, applications would also call network resources at a high frequency. According to OKLink's statistics on that day, the 24-hour liquidation volume on that day reached 42.46 million US dollars, a surge of 1345% from the previous day. At the same time, the number of transactions on the ETH chain increased sharply, and the network was congested. On that day, there were nearly 20,000 transactions waiting to be confirmed by miners, and the gas fee in the extreme speed mode once exceeded 2000 GWEI.
It is no surprise that on-chain transaction fees reached a monthly high on May 19. No wonder some investors commented that, regardless of regulatory factors, Ethereum mining is an investment with high certainty and high returns. "When prices rise, miners earn more; when prices fall, especially when they plummet, DeFi liquidations can continue to contribute to income." The growth rate of transaction fee income exceeds that of mining rewards. It is not difficult to find from the data of TheBlock that since June last year, the growth rate of Ethereum miners' income has been obvious, among which the on-chain transaction fee income has increased significantly compared with two years ago.
The increase in transaction fee income has only occurred in December 2017 and January 2018. As everyone in the cryptocurrency circle knows, that was the period when ICO issuance began to appear on a large scale on the ETH chain.
It was not until June last year that Ethereum ushered in a new use case. Liquidity mining, popularized by the lending protocol Compound, ignited the DeFi market. Decentralized exchanges DEX and lending applications grew explosively. Insurance, algorithmic stablecoins and other protocols became popular scenarios in turn. Users pursuing high returns on Farm flocked in with funds, and the network usage rate became higher and higher. When the ace DEX Uniswap airdropped the governance token UNI, it kept blocking the network, and the average transaction fee was pushed up to an extreme 10ETH.
The total transaction fees on the ETH chain have also been rising along with the prosperity of these applications. Since June last year, the DeFi market has just gone through a 12-month annual cycle. Honeycomb Finance has found that the income structure of Ethereum miners has changed significantly this year. The transaction fee income is approaching the block reward income from mining, and even exceeded the block reward income in September last year and February this year.
Changes in the income structure of ETH miners in the past 12 months
In June 2020, of the miners’ total revenue of $110 million, mining rewards accounted for $90 million and on-chain transaction fees accounted for $20 million, accounting for only 18.19% of the total revenue. By May of this year, of the miners’ revenue of $2.35 billion, mining rewards accounted for 56.17% of the total revenue, and transaction fees accounted for 43.83%.
In the past year, the proportion of mining reward income for miners has shown a gradual downward trend, while the proportion of transaction fee income has increased, and the growth rate is even higher. In the past six months, the total income from mining rewards has increased by 403% compared with the first six months; the total amount of transaction fee income in the first six months was US$450 million, and after the next six months, the total amount of this part of income has increased to US$3.56 billion, a six-month increase of 691%.
Such an increase shows the importance of an active on-chain ecosystem to miners’ income. However, the high on-chain transaction fees have enriched Ethereum miners, but it is not a healthy trend for network users. The cost of use caused by congestion and high fees is ultimately borne by the “sheep”, which includes both DeFi users and on-chain applications.
The fee structure is one of the reasons why Ethereum implemented the EIP-1559 proposal in the London upgrade in July.
The proposal directly designs a pricing mechanism for network transaction fees, dividing the fee structure into basic fees and tips. Among them, miners will not receive the basic fees, which will be destroyed; tips from user pricing rewards belong to miners.
This design undoubtedly reduces the network fee income of miners. But at the same time, EIP-1559 stipulates that when the capacity of each block exceeds the target Gas usage, the basic fee will increase in the next block; otherwise, it will decrease. This allows the Gas fee to be adjusted according to the demand of the network. For users, choosing to reward the fee according to the network situation is undoubtedly more flexible than the current high and unpredictable transaction fees.
EIP-1559 adjusts the network's fee structure. The destruction-style deflation is conducive to ETH's value capture, but it can also be seen that the network's total capacity and block time will not change, which means that the problems of network congestion and inefficiency cannot be fundamentally solved.
Ethereum 2.0, which switches from PoW to PoS, may be the ultimate solution, but it will take a long time for it to be truly implemented. Fortunately, a series of Layer2 transition solutions are emerging. For Ethereum miners, the fee income will last longer than the graphics card mining rewards. After all, even if the PoW Ethereum chain does not stop at the end of this year, it will inevitably disappear in the future. |
