There has been an increase in fees on Ethereum since July, averaging 112 Gwei. The growing popularity of DeFi platforms could be causing the network’s congestion.
Ethereum users are being forced to pay up to more than USD 7 worth of fees to transfer a few US cents from their wallets. Community members denounce it, saying that they hope that there will be a decrease in Gas rates to continue using the network.
Gas rates — fee to pay for each transaction on Ethereum — have increased significantly since last July. According to data from EthGasStation, they currently have an average of 200 Gwei for quick confirmation on the blockchain.
The fee has increased so much that some users are starting to have problems transferring their money since the fee is more expensive than transfers. Reddit user Moneyprintergo-brrr reported that he needed to pay a fee of USD 7.67 to transfer as little as 0.29 US cents worth of DAI. In other words, the fee is 26 times more expensive than the money to transfer.
Another case, not so dramatic but just as expensive, is that of a Twitter user @craiglashmet. He stated that he must pay a fee of USD 14 to the network to move USD 50 from his wallet. In the case of the lending platform Compound, it is necessary to pay a fee of more than USD 10 to conduct any transaction with assets.
According to economist Alex Krüger, high demand on the Ethereum network could be raising the price of fees, even reaching values that nobody had seen since 2015. According to data from Etherscan, it is possible to notice that there has recently been a rebound in the number of transactions on the blockchain, recording more than 1 million transactions per day.
The huge activity on the Ethereum network seems to be related to the popularity of decentralized finance (DeFi) platforms. Applications in this sector have begun to mobilize large amounts of money and daily user traffic, especially those projects specializing in yield farming.
Some users could be becoming rich from the use of these DeFi applications, increasingly demanding transactions from the network. However, these activities could be negatively affected if fees increase on Ethereum. Yield farming requires a lot of movement of transactions and, in the event of arbitrage, the immediate availability of money.
If the network requires very high fees for transferring a few US cents, it will be very difficult for the practitioners of yield farming to perform their activities and generate profits from it. The profitability of these operations for retailers would go entirely to the payment of fees. For that reason, an over-demand from the Ethereum network is detrimental to the use of the DeFi market and could increase the risk in these investments.
In recent days, the Bitcoin network was slightly decongested, but fees have once again reached an average of USD 5 per transaction. As long as the rise in the cryptocurrency market persists, fees are likely to accompany the rise.
By Alexander Salazar
