Since early 2020 the decentralized finance sector has been recieved a lot of attention due to its cutting-edge innovation and the lucrative high yield opportunities offered to cryptocurrency holders. 

Despite these features, this week’s record-high gas fees show that the sector is still having growing pains and the absence of a suitable layer 2 solution could be pushing smaller investors away from DeFi.

Investors attempting to place a trade on Uniswap or simply approve a new token on their favorite DeFi platform will have noticed the dent these actions have put on their ETH wallet.

9175090b be3a 46fd 80cd f058ac9684e7
Average Ethereum gas price. Source: Etherscan

Data from Etherscan shows that while gas prices have not reached as high as they were in 2020, they are noticeably higher since December of last year. This rise in gas fees also coincides with the surge in Ether price.

Analysis of different time zones shows that the cost for transactions occurring during the Asian trading session are comparable to those during the U.S. trading session. This shows that the fees are a factor of network usage and highlights the 24-hour nature of the cryptocurrency market.

7c696a1b 9283 4c8d a984 82f24efff9b1
Average Ethereum fees by day in 2020. Source: Flipside Crypto

There is one group, however, that has benefited from the sharp increase in network fees. fees brought on by the rise of DeFi: Whale token holders.

A closer look at wallets that contain at least 20 ETH throughout 2020 shows a higher number of Ethereum transactions than those coming from smaller wallets, which also correlated to an increase in fees.

c2df555b f40c 4750 8618 e2ab3c396d77
Number of transfers by wallet size in 2020. Source: Flipside Crypto

Since gas fees are not calculated based on the size of the transaction but rather the cost to interact with smart contracts, large wallet holders are more likely to engage with the protocol during higher congestion times as a larger wallet balance is less affected by raising transaction costs.

Hypothetically, a $200 trade and a $20,000 trade on Uniswap could both cost roughly $50 in fees under current conditions, making it less likely that smaller wallets will engage as the cost of the trade is 25% of the total value traded versus 0.25%.

In order for DeFi to continue its explosive growth, the gas issues seen on the Ethereum network problem will need to be addressed before any level of mass adoption can be achieved.

Source: COINTELEGRAPH

Bitcoin ETFs

A Decade in the Making: US SEC Approves 11 Bitcoin ETFs, Igniting Market Enthusiasm

After years of anticipation and regulatory scrutiny, the U.S. Securities and Exchange Commission (SEC) has granted approval to 11 Bitcoin ETFs applications, marking a significant milestone in the cryptocurrency and ...
Read More
Will Bitcoin Price Increase 200% When Bitcoin ETF Is Approved?

Will Bitcoin Price Increase 200% When Bitcoin ETF Is Approved?

Everyone wants to know that bitcoin will Bitcoin Price Increase 200% When Bitcoin ETF Is Approved? We talk about the Bitcoin ETF, an important part in the cryptocurrency space. According ...
Read More

10 Must-Have Features on Bitcoin Staking Site

Crypto has provided many benefits for online gambling, and almost all relevant gambling sites now offer it as a payment method.  With so many gambling sites, players, especially those without ...
Read More
Christmas in the cryptocurrency world arrives early as the pre-holiday crypto market heats up

Christmas in the cryptocurrency world arrives early as the pre-holiday crypto market heats up

Happy Cryptomas to all of you! During the bullish state of the crypto market, margin-lending platforms and decentralised exchanges were the most often used DeFi protocols. Bitcoin is Up 167% so ...
Read More
Share with Others