High Ethereum Fees Create Powerful Uncertainty for DeFi

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High Ethereum Fees Create Powerful Uncertainty for DeFi

Gas fees for transactions on the Ethereum network have reached new highs, making the DeFi ecosystem highly unstable.

While some believe that it is a natural indication of high demand, others think that users should migrate to other smart contract networks. For example, Binance’s CEO made a comparison between Ethereum and the Binance Smart Chain (BSC), showcasing BSC’s better performance.

The leading altcoin has increased significantly in value since the start of the year. Stalling at $740 for almost a week, ETH managed to overcome multiple levels of resistance and reach up to $1,102 on January 5. Likewise, gas fees also began to increase along with higher DeFi usage, trading, and transactions on Ethereum.

According to historical data from Etherscan, average gas fees are approaching 2020 September levels. The smart contract ecosystem reached the highest levels of fees in a while, specifically 259 Gwei at the start of the week.

While this is nowhere near compared to what we have seen since Ethereum’s launch in 2015, high ETH prices are having a high effect on the gwei value itself.

Numerous cryptocurrency users now encounter transaction fees between $100 and $150. As such, it makes it impossible to use any dApp or make a transaction unless users can afford to do so. A part of the community worries that the change of events may lead to a slowdown for not only ETH but for DeFi itself.

Market data from DeFi Pulse shows that, despite the high fees, DeFi is not slowing down anytime soon. Since the start of the year, the market increased from $14.27B to $17.85B. The exponential rise may momentarily pause. However, real high demand will turn the pause into a temporary correction.

Are high Ethereum fees meaningful in any way?

While the rising fees reveal certain concerns in the community, gas may turn into a ‘non-event.’ If cryptocurrencies were to stop moving every time fees became too high, we would never see euphoric movements like 2017. On that account, users should worry less about the problem, at least for the moment.

One trader from the San Francisco-based investment firm Paradigm named Arjun Balaji shared several sentiments regarding this subject.

In a Twitter post on January 4, Balaji made a comparison of three beliefs within the crypto community. While ‘broke’ users believe that high Ethereum fees make DeFi unusable, ‘woke’ users believe that rising fees indicate strong demand.

On the other hand, the most ‘enlightened’ users understand that average transaction sizes are growing faster than the average Ethereum gas fees. While users may pay more, the average transaction now contains more value. Therefore ETH users can afford to make expensive transactions.

Should enthusiasts move from Ethereum to BSC?

As CZ’s tweet suggests, users should move from Ethereum to the highly scalable Binance Smart Chain. After all, the smart contract ecosystem features far lower fees compared to the currently dominating blockchain network. But is that a choice that individuals should make?

While BSC offers lower fees, it has never experienced a major inflow of new users and activity. We cannot acknowledge its ‘superiority’ given that it has never supported the number of users that Ethereum does. Moreover, the number of dApps and platforms found on the Binance Smart Chain is quite smaller compared to ETH’s DeFi.

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Marko Mihajlović

Marko is a content writer passionate about cryptocurrencies, blockchain technology, geopolitics, and information security. After an internship at Cointelegraph in 2018, he decided to pursue writing about the field of decentralized technology full-time.

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