Decline in DeFi Transaction Volume has Seen Lower Ethereum Fees But the Rise of NFT Could push Transaction cost back up
March 6, 2021 4:04 AM
Decentralized finance (DeFi) has seen increased popularity among the financial system which has brought fresh attention to the crypto industry. DeFi protocols total value locked (TVL) went from $1 billion to over $55 billion.
Increasing gas fees is due to the Ethereum network congestion which has been propelled by the launch of various DeFi protocols on the network.
Gas fees are currently used to interact with DeFi protocols hosted on the Etheream network, Gas fees have been rising since November 2020 and got to a peak on February 23 with the average transaction cost at 373 Gwei worth $11.72 presently.
However, Ethereum network fee has declined by about 65% as the average cost dropped to 131 Gwei on 3rd of March and data shows that on certain occasion the fees go below 70 Gwei per transaction.
Market correction has assisted the decreasing network fee
The recent gas fee declining could be linked to the crypto market correction as the daily decentralized exchange volume took a major hit in the past few days
Daily DEX volume. Source: Dune Analytics
According to data from Dune Analytics which shows that the trading volume on Decentralized Exchanges has been declining since peaking at $4.35 billion on Feb. 23 and the DEX daily 24-hour growth metric was down by more than 50% on March 5.
Data scientist Connor Higgins from Flipside Crypto, said fees have decreased in recent times but rather than associating it to a specific cause, Higgins said that the high fees seen on Feb. 23 were an outlier when compared against the overall average on a longer time span.
"On average fees did fall, but it looks more like they are normalizing after a day of unusually high fees.”
Rising NFT transactions on the Ethereum network
Ethereum network users would have been pleased to see a more significant drop in has fees as we continue to see a decrease in DeFi transactions, which has not been the case.
The high rates could be attributed to the rising activities in the Non-Fungible Token (NFT) sector. With more NFT projects launching and holding auctions, network congestion is set to continue which will result to high gas fees.
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