ETH fees have finally plummeted, but projects such as EOS have "take advantage of the danger" and start to grab the DeFi position

Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc), by Kyle, published with permission.

Editor's Note: This article comes from

Babbitt Information (ID: bitcoin8btc)

Babbitt Information (ID: bitcoin8btc)

, by Kyle, published with permission.

If there's one good thing that has come out of the ETH price crash in recent days, it's that transaction fees on the Ethereum network have finally plummeted.

According to data from QKL123, last Wednesday, the average transaction fee on Ethereum hit $14.5, the highest average cost of an Ethereum transaction since 2018, up 7,000% from the beginning of the year, when the DeFi boom Not yet.

It is worth noting that the trend curve between the collapse of ETH and transaction fees seems to be constant, but the price of ETH lags behind transaction fees in terms of time. After falling to $6.1 on September 4, the average Ethereum transaction fee rebounded to $7.5 on September 5 before falling to $3.35 on September 6. The price of ETH has been falling today until it hit a low of $312 on the morning of September 6, and then began to rebound above $350 on the 6th. Does this mean that ETH price will continue to fall in the short term.

Part of the reason ethereum network fees have risen so high is due to increased activity on ethereum. Since the rise of DeFi (that is, decentralized finance) this summer, interest in DeFi tokens has grown, with hundreds of millions of dollars of encrypted assets invested in DeFi projects. The total locked value of the DeFi ecosystem has exceeded 12 billion US dollars at its peak in recent days. This is mainly due to the promotion of the liquidity mining frenzy, which has also led to a record high in the average transaction fee of ETH.

Today, almost all major DeFi protocols run on Ethereum (Ethereum), so transaction activity has increased, which in turn drives up transaction fees.

But due to increased activity on the Ethereum network, not only are transaction fees rising, but its network utilization is also hovering around 96%. If the utilization is higher, the network will be blocked and unusable. Many scaling solutions are still being developed, such as Ethereum 2.0, which will implement a network upgrade that will greatly increase its capacity, and this upgrade is expected to be launched later this year.

High transaction fees greatly limit the development of DeFi applications

DeFi projects and the boom in liquidity mining brought about by them are the main factors that keep transaction fees at a high level. Liquidity mining farmers need to pay Ethereum fees for transactions such as transferring funds in and out of token pools. An increase in the number of people participating in mining results in more transactions and slower transaction confirmation times, which inevitably increases fees.

High transaction fees also make it difficult for many DeFi projects to launch. Some DeFi projects have had to suspend transactions while waiting for gas to return to normal levels. For example, on September 5th, DEX Perpetual Protocol, a derivative product that has recently attracted attention, announced that the current gas fee is too high to make many users unable to use Perpetual Protocol, which also makes it difficult for the Perpetual Protocol team to continuously deploy and maintain Perpetual Protocol, so Perpetual Protocol decided to unlimited We will postpone the mainnet launch until gas fees return to normal and perp.fifi can run on the layer 2 solution of Ethereum or its side chain.

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High transaction fees make projects such as EOS have opportunities in the DeFi movement

The popularity of DeFi liquidity mining has made many blockchain projects other than Ethereum feel "envious", so they are scrambling to follow suit, with EOS and Tron being the most active. On September 4th, the EOS ecosystem recently launched the first liquidity mining project Diamond.finance. Although Diamond.finance has been questioned from the very beginning, there are many problems, but it is still difficult to stop the liquidity mining participants. The project locked 8 million EOS in less than 1 day. As of press time, 15 million EOS have been locked. The reason why projects such as EOS are able to grab a place in the DeFi liquidity mining movement is entirely due to the high transaction fees of Ethereum. Compared with Ethereum liquidity mining, which is not friendly to ordinary users, ecological liquidity mining such as EOS and Tron can almost achieve zero-cost participation, and ordinary users only need to pay a small amount of transaction fees to participate.

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How does Ethereum overcome high transaction fees?

Ethereum founder Vitalik Buterin recently shared his stance on addressing transaction fees.

First, he pointed out that increasing the Ethereum block size is not a short-term solution due to the security risks of block broadcasting and the efficiency of nodes:

“However, increasing network capacity safely is difficult. Ethereum nodes are already operating close to their limits and are at risk of DoS attacks, processing transactions much slower than regular blocks, slowing down the network. Higher gas limits would exacerbate this."

Buterin sees a viable short-term solution for now as a new ethereum improvement proposal, BIP2929, which "will increase the gas cost of certain particularly sensitive operations, making it safer to raise the gas limit". He sees this as just a short-term solution that could reduce transaction costs by about 25%.

The medium-term solution he's focusing on is the so-called technology "Rollup," essentially equivalent to bitcoin's Lightning Network.