As the boom in decentralised finance (DeFi) subsides, transaction fees at Ethereum are returning to normal.
Decentralised finance (DeFi) has been the main player in 2020, however, now that its boom is waning, this has an effect on transaction fees at Ethereum. Specifically, there has been a slowdown in the trade of cryptosystems in the decentralized exchanges. Consequently, this has helped to ease congestion in the Ethereum blockchain.
In a way, this temporarily alleviates concerns that the network was becoming overloaded.
Is the rise of the DeFi over?
Has the DeFi boom subsided?
Recently, the prices of many of the most popular tokens in the decentralised finance sector, or DeFi, fell. SushiSwap’s SUSHI token, one of this year’s most striking debuts, has fallen 77% in the last 30 days, while DeFi Compound’s COMP tokens have lost 37%.
Similarly, at Uniswap, the largest decentralised exchange, or DEX, daily trading volumes have plummeted to $224 million, compared to a record $954 million on 1 September.
What has happened in the DeFi sector to cause it to deflate in this way?
At the time, many analysts suggested that in the short term the DeFi sector looked like a bubble, but at heart it had potential. However, at present there is talk of low volatility in the overall cryptomoney market.
A few weeks ago in CryptTrend we followed up on some events where we discussed precisely what could happen in the DeFi sector. It is undeniable that DeFi have gained popularity among investors and traders alike.
In that regard Connor Abendschein explained that the low volatility Bitcoin Rush in the cryptomoney market as a whole has helped to reduce the volume and costs of transactions at Ethereum. Abendschein is an analyst at Digital Assets Data.
However, the resulting congestion had raised concerns for many people. Specifically, the main concern was the high fees for sending transactions through the Ethereum blockchain. It was even feared that this might push application developers to consider alternative networks.
What implications does this have for Ethereum?
The total guarantee locked in on DeFi platforms jumped to a record $11.2 billion in September, from less than $2 billion at the end of June, according to the DeFi Pulse data website. Since then, the amount has been reduced to around US$ 10 billion.
The decline has contributed to a drop in daily Ethereum transactions to 1.3 million from the last 2.5 weeks. And with less traffic on the network, congestion has been reduced, which has helped reduce the rates that increased when users paid for priority transaction processing.
As the DeFi boom subsides, transaction fees at the Ethereum seem to be returning to normal. However, this may be temporary, as in the event of a new DeFi protocol emerging these fees could skyrocket again.
Thus the average cost of executing a trade on the Ethereum blockchain has fallen to just over $2.00 from a record $14.58 on September 2nd. This according to Glassnode data. However, the rate is still well above the 8 cent level that prevailed earlier this year.