Cumulative transaction fees are more than twice that of Bitcoin. Does this mean that Ethereum is still undervalued? Solve the congestion problem first.

At a critical moment when DeFi is booming and ETH prices have hit a new annual high, Ethereum network transaction fees have also skyrocketed after continuing to rise for half a year. Glassnode data shows that the average daily gas fee of Ethereum has continued to rise since May, and on July 27, it once exceeded 90Gwei, an increase of nearly 20 times from the beginning of the year.

For a number of DeFi projects running on the Ethereum network and ordinary Ethereum users, the increasingly congested network and increasingly expensive transaction fees have become an "unbearable burden" for the Ethereum ecosystem.

01 Congested Ethereum: The "unbearable burden" for users and project owners

Delphi Digital’s latest report shows that transaction fees on the Ethereum chain have surpassed Bitcoin in the past two months - during this period, ETH’s cumulative transaction fees were $46.7 million, while Bitcoin’s were $25 million.

This is obviously "attributed" to the vigorous development of the DeFi ecosystem. The most direct example is the amount of ETH locked in the DeFi ecosystem. As of August 2, the total ETH locked in DeFi has reached 4.311 million, accounting for 3.8% of the total supply.

Behind the huge amount of ETH locked in the hot DeFi ecosystem is the snowball-like growth of DeFi projects, which is also the key factor leading to the increasingly serious congestion of the Ethereum network in recent months.

Take the DEX track as an example, the total transaction volume in July has reached 4.2 billion US dollars, while the total transaction volume of DEX last year was only 2.4 billion US dollars. Among them, the star projects Uniswap and Curve Finance are even more crazy, with daily transaction volume exceeding the 100 million US dollar mark in July, and Curve Finance's daily transaction volume once exceeded 150 million US dollars, looking down on a number of second- and third-tier centralized trading platforms.

The weekly transaction volume of the entire DEX track exceeded 1.5 billion US dollars at the end of July, setting a record high. The exponential growth of on-chain transaction volume naturally gave rise to a huge demand for network transfers. As the popularity of DeFi projects soared, the corresponding Ethereum network inevitably seemed unable to cope.

When mapped to the specific and detailed usage level, it naturally means a single payment of several dollars or even more than ten dollars in gas fees and a long waiting time.

The fact that the transaction fee on the Ethereum chain has reached twice that of Bitcoin in the past two months is the most vivid manifestation. The last time Ethereum was congested due to the same surge in on-chain demand, which made everyone "painful", was during the ICO boom in 2017.

02 ETH2.0 is not enough to quench the thirst of the near. Ethereum needs a new solution

However, what may be slightly different from 2017 is that this year, Ethereum's increasingly congested network and increasingly expensive transaction fees have not caused widespread discussion in the community that "it will lead to the decline of Ethereum" as it did back then. The difference lies in the hope and expectations that ETH2.0 brings to everyone:

For the Ethereum community in the past two years, although it is always stretched, ETH2.0 has been advancing, so everyone assumes that " congestion is only a matter of time ." However, the sudden test under the popularity of DeFi has made everyone feel the pain.

Vitalik Buterin specifically tweeted about the current situation of soaring transaction fees, saying that transaction fee income in the current income structure of Ethereum miners is close to half of the block reward, which may threaten the security of Ethereum. At the same time, he emphasized that "proposals for the fee market (such as EIP 1559) can solve this problem."

But even though we are getting closer to the launch of Phase 0 of ETH2.0, and even though we may choose to deploy the EIP 1559 proposal next, it seems to be a drop in the ocean compared to the ever-expanding transaction demand on the Ethereum network.

Therefore, when ETH2.0 has been waiting for a long time and the performance bottleneck has become an imminent obstacle, a group of projects have gradually chosen to find another way and turned their attention to possible solutions for Layer 2 - Plasma, Sidechain, State Channels, Opitmistic rollups, ZK rollup, Vadium, which are the six main technical solutions for Layer-2.

However, unlike Plasma (sharding), Sidechain, State Channels, which are old-fashioned Layer2 directions that everyone has been familiar with for a long time, Rollups technology (Opitmistic rollups, ZK rollup) is a new track that has just emerged this year, and has quickly become recognized as the most promising Ethereum layer-2 expansion solution.

03 Layer-2’s counterattack: New dawn brought by Rollup

Vitalik Buterin has made it clear many times this year that under the current congestion of the Ethereum network, efforts should be made to resolve it through the Rollup solution in the short term. He has also personally recommended the Rollup solution to Tether CTO and other project demanders, " ( Rollup solution) This is the only method in the short term, and there will definitely be ETH2.0 in the long term."

So what is Rollup? It can be simply understood as a "compressed transaction package" - Rollup packages a large amount of transaction data originally scattered in the block into a "condensed" transaction, then publishes it to the chain and verifies its security in some form.

According to the different forms of verifying data security, it can be divided into Opitmistic rollups and ZK rollups. The former uses fraud proof (mechanism design), and the latter is zero-knowledge proof ZK Rollup (technical guarantee). Currently, these two Rollup technologies are also the most secure Layer-2 paths.

The biggest advantage of Optimistic Rollups lies in its general computing . Compared with the specific application bottlenecks of ZK Rollup (payment, transaction), almost anything that can be achieved on Ethereum can be achieved equally on Optimistic Rollups, which naturally includes the composability of smart contracts such as DeFi. For this reason, Synthetix is ​​considering using the Optimistic rollups solution to build its trading platform.

The advantage of ZK rollup, which is favored by Vitalik Buterin, lies in its near-absolute security. It introduces zero-knowledge proof technology, which allows all calculations to be performed in batches off-chain, and only requires submitting a small zero-knowledge proof (which cannot be a forged proof) to Ethereum for verification - since Ethereum verifies these proofs and stores enough data to accurately determine the status of off-chain accounts, it has Ethereum-level security.

Loopring, which has been endorsed by Vitalik Buterin many times, is also the only project that has been successfully used in ZK rollup. Based on ZK rollup technology, Loopring migrates most of the calculations to the off-chain, and only broadcasts the new state hash of the transaction and its corresponding proof to the blockchain. Under the premise of ensuring the same security as the Ethereum main chain, it achieves high-throughput and low-cost transactions:

In actual tests, the average cost of each transaction is about 5,000 gas, or 0.0000177 ETH. According to subsequent optimization, the final cost of each transaction is only 0.09 RMB (the cost of 1 million transactions is about 900 RMB). In theory, the transaction rate can be increased to 3,000 TPS, far exceeding the current Ethereum status quo of 10 TPS, and almost on par with VISA's 3,000 transactions per second.

More importantly, Rollup is not just a "stopgap measure" before the arrival of ETH2.0. After ETH2.0 is officially launched, it can continue to enhance throughput and further improve its own availability.

Therefore, the Rollup direction in Layer-2 is likely to become a new dividend gathering place as the Ethereum ecosystem continues to grow.

Ethereum developer Philippe Castonguay publicly stated on July 28: Now is the best time for the new Layer-1 to steal Ethereum users. Otherwise, once Layer-2 and ETH2.0 move forward at full speed, the advantages of cheap fees and high throughput will make the final window of action left for Layer-1 very short.

In the past five years, from smart contract platforms, token financing, stablecoins, to this year's DeFi, almost every hot spot has been led by Ethereum and is Ethereum's home court. Therefore, for the rapidly advancing Ethereum, the past five years can be regarded as the first half of the continuous exploration of development paths.

What ETH2.0 is about to open is undoubtedly the second half of Ethereum's new development stage. What role can Layer-2 play during this period, especially in the context of the current extreme congestion of the Ethereum network? Let us wait and see.

What do you think about the future development of Ethereum? Please leave your comments in the comment section.