Each transaction on the Ethereum network necessitates a payment, known as a gas fee, priced in gwei, for processing. As the DeFi sector on Ethereum is experiencing rapid growth, the demand for transaction processing on this blockchain has skyrocketed. ETH The critical demand for blockspace has driven gas prices to daunting levels. Just weeks ago, users witnessed the blockchain's transition to an expensive new norm, as prices averaging below 100 gwei began to seem improbable.
In turn, the growing competition for Ethereum A current gas price of around 100 gwei is approximately equivalent to $0.8. When Ethereum activities involve series of bundled transactions, this fee increases significantly, even for single activities.
Looking at this week's developments, the need for blockspace has shown no signs of easing. As of August 12th, the average gas fee soared to an astonishing 287 gwei.
From a broader perspective, Ethereum usage has increased throughout the year, fueled by thriving sectors connected to Ethereum like DeFi, NFTs, and social money, which have been rapidly gaining traction. ETH Gas Station . That’s roughly $2.30 per transaction!
So What’s Going On?
For instance, the average transaction fees on Ethereum over a 30-day period have surpassed Bitcoin’s equivalent metric for nearly two consecutive months.
Ethereum fees over a 30-day moving average have remained higher than Bitcoin's for 53 days, with Ethereum fees being about 40% greater.
The recent rush in transactions owes much to the rise of yield farming in DeFi, where projects incentivize users by rewarding them in cryptocurrency. pic.twitter.com/h8CXjp3u2H
— Larry Cermak (@lawmaster) August 11, 2020
As yield farming has surged, we've seen capital shift dramatically as users chase after high-yield opportunities in trendy projects. This week's big draw has been Yam Finance and its YAM token. governance tokens for using their protocols.
Launched informally on August 10th, Yam Finance quickly captivated the DeFi space, sparking significant excitement.
YAMblers, All of Us!
YAM operates on a flexible supply mechanism that adjusts based on market conditions, striving to maintain a price of $1 per YAM at its foundation.
To create this model, Yam's developers assembled components from other DeFi protocols in a unique combination. They drew inspiration from Ampleforth's supply model, Synthetix's staking system, and Compound's governance features, resulting in an innovative experiment that rewarded early adopters with YAM tokens. explained in its introduction post.
This innovative fusion attracted yield farmers worldwide, with the project raising $560 million in staking contracts within just 30 hours of its debut.
However, the influx of users into Yam Finance added tremendous pressure to Ethereum’s gas fees, making the costs to participate in staking or withdrawing YAM rewards prohibitive for many.
Exorbitant gas prices in the range of 300 gwei effectively push out smaller users from participating in Ethereum decentralized applications.
All Signs Point to Bull?
Yet these prices also highlight Ethereum’s growing prominence in the crypto economy, where numerous users choose to pay high fees for the privilege of using Ethereum's blockspace.
In such an optimistic market environment, current gas fees might seem small relative to the potential returns from yield farming activities, which in turn might enhance overall buying interest in crypto assets.
It's on the brink of a breakthrough, although this transformation is still a few months out. For now, gas-related challenges are likely to persist.
https://twitter.com/mdudas/status/1293655249325035525
The good news is that Ethereum’s layer-two scaling ecosystem William M. Peaster is a seasoned writer and editor with expertise in Ethereum, Dai, and Bitcoin across the cryptoeconomy. His work has been featured in publications like Blockonomi, Binance Academy, and Bitsonline. He enjoys exploring smart contracts, DAOs, dApps, and the Lightning Network, while also delving into Solidity. For inquiries, connect with him on Telegram at @wmpeaster.
