Ethereum gas fees fall as DEX and DeFi volumes drop

As DeFi transaction volume declines, Ethereum's GAS fees have also fallen from recent highs, but the rise of NFTs may push transaction costs back to new highs.

The continued rise of decentralized finance (DeFi) has brought new attention and positive sentiment to the cryptocurrency space. In less than a year, the total value locked in all DeFi protocols has increased from $1 billion to $59 billion. The top 5 platforms account for $24.33 billion of the total value.

The rise in GAS fees is one of the most obvious results of the increase in interaction with DeFi protocols, and the Ethereum (ETH) network currently hosts most of the top DeFi projects. GAS fees have been rising steadily since November 2020 and peaked on February 23, when the average transaction cost reached 373 Gwei, which is about $11.72 at the current Ethereum price.

Ethereum gas fees fall as DEX and DeFi volumes drop

Fees have fallen 65% since February 23, with the average fee falling to 131 Gwei on March 3, with data showing that fees were below 70 Gwei at certain times.

DeFi volumes drop as market pulls back

One possible reason for the drop in GAS fees seen over the past few days can be found by observing daily decentralized exchange (DEX) volumes.

Ethereum gas fees fall as DEX and DeFi volumes drop

Data from Dune Analytics shows that DEX trading volume has been declining since reaching a peak of $4.35 billion on February 23, and on March 3, the DEX daily 24-hour growth indicator fell by 50%.

According to Connor Higgins, data scientist at Flipside Crypto, fees have dropped over the past few days, but Higgins did not attribute it to one specific reason, instead saying that the high fees seen on February 23 were an outlier compared to the overall average over a longer time span.

Higgins said:

“The average fee did go down, but it looks more like it’s normalizing after a day of high fees.”

Ethereum gas fees fall as DEX and DeFi volumes drop

As can be seen from the above figure, from February 22 to February 23, due to the market-wide sell-off, the BTC price fell by 23.6%, the altcoin prices also corrected sharply, the network congestion increased, and the GAS fee was significantly higher than the average level. After the market stabilized, the GAS fee returned to the normal average level.

The popularity of NFT may keep GAS fees at a high level

Those using the Ethereum network may have expected a bigger drop in GAS fees as DeFi transactions decreased, but this has not been the case. One reason why rates remain high may be the recent increase in activity in the non-fungible token (NFT) space.

Ethereum gas fees fall as DEX and DeFi volumes drop

As more NFT projects launch and hold auctions, high transaction costs and network congestion on the Ethereum network are likely to continue until a widely integrated scaling solution is implemented.

Over the past two months, Layer 2 solutions and protocols with cross-chain bridges to Ethereum, such as Polygon and Binance Smart Chain, have emerged, and many projects are migrating to these platforms as the best short-term solution to high fees.

Projects like Aavegotchi and SushiSwap have demonstrated the effectiveness of these networks following their recent integration with Polygon, and with transaction costs and speeds superior to Ethereum, other NFT and DeFi projects are likely to follow suit. (Cointelegraph)