Ethereum fees have fallen spectacularly — how we got here and what’s next
As of October 8, average ethereum fees have fallen by 86%, to about $2.02 from their September 2 peak of $14.58. People would say this fall was expected due to the reduced interest and slow-down in the decentralized finance (DeFi) space.
How did we get here?
While talking about the current drop, it is worth mentioning some facts about ethereum fees in 2020.
Since January 1 right up until March 11, the average fees were just in the range of $0.08 to $0.28 (coincidentally 86% lower than the current average fee of $2.02). March 12 saw about a 550% increase to $1.05, which was mainly caused by the huge interest in USDT, PAX and USDC when COVID-19 related restrictions were put in place.
Another evident spike (visible on the graph provided by Glassnode below) happened on June 11, when an ETH transaction worth about $84k at that time was mined with a $2.6 million transaction fee (making the daily average fee reach $4.03) through Ethermine Pool and SparkPool. There were lots of speculations about this particular transaction and the mining pools mentioned above even froze the payout for a couple of days (they tried to get in touch with the sender and remedy the situation in the event it had been just a mistake) but afterwards the funds were fully distributed to the miners.
Soon after that, the roller-coaster ride started. According to the data from defipulse.com, out of the top 25 DeFi protocols based on Total Value Locked, 24 are built on Ethereum blockchain. In just the last 4 months, Total Value Locked in DeFi has skyrocketed from $1 billion to $10+ billion. As these DeFi protocols competed with each other (and the rest of the users of Ethereum blockchain) to get their transactions processed, the “invisible hand” drew the wild graph visible above.
The Ethereum blockchain has been blamed for being a victim of its own success. As it is relatively straightforward to build an application on top of it, lots of projects flock the network, congest it, and drive transaction fees to record levels. Even though transaction fees still would not be an issue for transactions above a certain value, it could be for lots of users, as the average transaction value has been in the range of $250 and $2,500 for the last 2 years.
As promised by the Ethereum Foundation, Ethereum 2.0 should bring the much-needed upgrade to the network, that will reduce energy consumption, allow the network to process more transactions and increase security. All of this would eventually translate to lower fees and higher speed, but we (as humans) tend to over-utilize things that do not have unlimited capacity, so, should Ethereum 3.0 be on its way too?