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Ethereum fees hit a new low ever since the DeFi boom began

Photo of: Sangeetha Golchha
by Sangeetha Golchha

Is the DeFi craze slowing down? 

The question seems to be on top of the mind of those users who have noticed that the average price of Ethereum transactions has touched its lowest price since the middle of July. Such a trend observed would make us think If the hype surrounding Decentralized Finance finally coming to an end or merely slowing down. 

The average price of an Ethereum transaction has hit its lowest price since July especially when the decentralized finance excitement was catching up with people. A network that was weighed over by the DeFi excitement not able to handle the stress and the weight of the demand resulting in higher fees is suddenly seeing the flared up transaction fees coming down. The DeFi summer brought with it, huge network demands for Ethereum, but registering a trend like this now could mean that the DeFi craze is either slowing down or correcting itself back to normalcy. 

The average price of an Ethereum transaction touched $0.905 on Saturday and with a little difficult went up to $1.029 the next day. This was brought to the notice of the community and the users by a data metrics firm BitInfoCharts. The registered average transaction price is a new low especially when it has seen the good old days of $14.583 from a single Ethereum transaction at the beginning of last month. 

The concept of Ethereum transaction fees is directly proportional to the demand of the miner’s computational power. The transaction fees on Ethereum go to the miners expending computational power to process transactions. The fees rise in the middle was a result of exceptionally high demands for the computational power relative to its supply. 

Source: BitInfoCharts

Not just the fees, the rush of activities due to heightened demand also puts in a lot of stress on the network. So, when the miners observe that a lot of people are trying to get their transactions processed all at once, they give priority to the highest bidders. So, when there is a decline in the fees, either the network is less active or the miners are more in numbers who can effectively deal with the supply. While on one hand, the fees paid on the Ethereum blockchain has been very volatile, the hash rate of the blockchain has been rising steadily since July. 

To be very fair to the achievements lined up by the DeFi sector, there is no doubt that DeFi has been growing at a staggering rate with its total value locked reaching $11 billion worth of cryptocurrency. But with the average transaction fees and that too for an Ethereum transaction ever since July, can be a surprising indicator that the hype is slowing down. This also could mean slowing down in the form of correction from June when many protocols encouraged their use by adding irrefutable incentives(some even going to the extent of offering up to 1000% APY). As a result, money was injected into these protocols leading to a boom. 

For Ethereum, we need to observe it for some more time to see if the decline is momentary or a new pattern.