Liquidity mining continues to cool down, Ethereum transaction fees will reach a 49-day low

The average cost of an Ethereum transaction has dropped to a 49-day low, signaling an end to sky-high transaction costs.

According to BitInfoCharts, yesterday, the average Ethereum transaction fee was $2.248, the lowest since August 9 ($1.94). On August 23, the average transaction fee was as low as $2.28.

Source: BitInfoCharts

On September 2 this year, Ethereum’s average transaction fee hit an all-time high of $14.583.

One reason for the high fees this summer could be the rise of DeFi, or decentralized finance, this summer. DeFi refers to a slew of non-custodial financial products, which include DeFi lending protocols, decentralized stablecoins, and synthetic assets.

September 2 showed that the DeFi craze reached its peak. After that, the network transaction fees began to decline. On September 17, Uniswap announced the issuance of the governance token UNI and began

"Throwing coins". Suddenly, a large number of users rushed to claim UNI, and the network fee rebounded sharply, reaching $11.612 on September 17. As the UNI effect faded, the network fee fell sharply this time.

Transaction fees increase when the demand to process transactions exceeds the miners or blockchain space to process them. A rise in transaction fees is more of a benchmark for increased network activity. Fees have fallen indicating decreased activity.

In the past few months, a huge amount of money has been poured into these protocols. According to the indicator website DeFi Pulse, nearly $11 billion is locked in DeFi smart contracts today; in June this year, this figure was only $1 billion.

The largest DeFi smart contracts are stored on the Ethereum blockchain. However, Ethereum, which can only process about 14 transactions per second, has been struggling to keep up, and network transaction fees have risen sharply.

The fact that fees are now decreasing could mean that DeFi activity is also decreasing. It could also mean that people are starting to turn to other blockchains. It could also mean that people are starting to rely on second-layer solutions (software built on the Ethereum blockchain to make transactions cheaper or faster), or that DeFi smart contracts are becoming more efficient, or simply reducing transactions.

Whatever the reason, these fee reductions are undoubtedly welcomed by traders in the emerging DeFi market.