DeFi is booming, can the Ethereum network bear its weight?
Editor's Note: This article comes fromCointelegraph Chinese (ID: CointelegraphChina), Author: MARCEL PECHMAN, reprinted by Odaily with authorization.
Editor's Note: This article comes from
Cointelegraph Chinese (ID: CointelegraphChina)
, Author: MARCEL PECHMAN, reprinted by Odaily with authorization.
The number of transactions on the Ethereum network more than doubled in 2020 and is now almost on par with the all-time high set in January 2018.
As the chart below shows, transaction volume has doubled over the past six months to 1.23 million transactions per day.
Ethereum 7-day average daily transaction volume Source: CoinMetrics
This scenario may seem very optimistic at first, but we have to remember that both EOS and Tron started out as ERC-20 tokens before launching their own mainnets and running completely independent blockchains.
A similar on-chain migration is happening with Tether’s USDT, the stablecoin that recently hit a $12 billion market cap.
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Ethereum 7-day average transaction fee Source: BitInfoCharts
As Ethereum fees have risen throughout 2019, and over the past year as well, some Tether (USDT) holders have opted for the Tron network.
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Current Tether USDT Balance Sheet Source: Tether
In contrast, in August 2019, Tron accounted for the majority of USDT in circulation on the Omni network and less than 3% of its market cap.
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USDT balance sheet in August 2019 Source: Tether
It’s worth emphasizing that USDT is currently in circulation on the EOS, Liquid, Algorand, and Bitcoin Cash SLP networks, albeit on a much smaller scale.
Can the Ethereum Network Survive a Spike in Transaction Fees?
To better assess the potential for additional outflows from the Ethereum ecosystem, one should analyze what types of transactions are taking place. Stablecoins, for example, have little incentive to stay on Ethereum during periods of network constraints.
On the other hand, switching networks on DeFi apps like Maker (MKR) and Compound (COMP) seems less obvious.
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Weekly Active Ethereum Tokens Source: Etherscan
Etherscan data shows that the use of decentralized finance (DeFi) applications on the Ethereum network is growing, but how sustainable are those numbers given current fee levels?
According to data from DefiPulse, the total value locked in DeFi has increased five-fold in the past 90 days. While this is shocking, how many Ethereum transactions are tied to this number?
Yearn.finance (YFI) transaction amount and volume Source: Etherscan
According to data from Etherscan, Yearn.finance (YFI) has averaged 3,400 transactions and 15,700 token transfers per day in the past week.
To determine if YFI is an outlier, Synthetix Network Token (SNX), another DeFi contender among the 20 most active Ethereum contracts, should be analyzed.
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Synthetix Network Token (SNX) transaction volume and volume Source: Etherscan
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What about the oracle?
Chainlink (LINK), the largest token designed to provide oracle solutions, is indeed an Ethereum ERC-20 token despite being interoperable on multiple chains.
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Chainlink (LINK) transaction volume and volume Source: Etherscan
LINK has averaged 35,000 transactions and 34 million token transfers per day in the past week. Considering its price of $13.40 during this period, the average value of each transaction is $13,000.
This analysis is another positive indicator that despite the recent increase in Ethereum network fees, some major oracles and DeFi applications will still be able to withstand it, at least temporarily.
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Not every smart contract can thrive at current fee levels
Rising fees on the Ethereum network have accelerated the development of second-layer solutions for some DeFi applications.
