There has been a reduction in Ethereum gas fees following the decline in the volume of DeFi transactions. Lately, DeFi has been Noticing a surge in its popularity, resulting in more investors exploring its offerings.
With this rising interest, the total value locked in DeFi protocols rose from $1billion to a whopping $59 billion within a few months. Amongst the existing DeFi platforms, only the top 5 protocols account for $24.33 billion of the TVL.
However, amidst the excitement which DeFi brought to the crypto community, investors can’t help but complain about the abrupt increase in gas fees. This has been a cause for alarm in the community.
Since many DeFi protocols operate on the Ethereum network, the gas fees haven’t been quite pleasant. It continued to rise steadily from November 2020 until when it reached 373 Gwei on February 23rd.
However, from Feb 23, the gas fees have plunged by 65%, thereby dropping to 131 Gwei on the 3rd of March. There have also been indications that gas fees even dropped below 70 Gwei sometimes in a day.
Reasons For the Decline in Ethereum Gas Fees
One of the factors responsible for the decline in gas fees is noticeable in the DEX volume. According to Dune Analytics data, the trading volume on DeFi exchanges has been going down constantly. The volume peaked at $4.35 billion on the 3rd of February but spiraled downwards by 50% on the 3rd of March.
Also, a data scientist working with Flipside crypto stated that gas fees reduced, yes, but it’s not right to label it with a particular reason.
According to Connor Higgins, the high fees were unusual, and this decline indicates that the fees are normalizing. This can be seen from a Flipside Crypto chart showing that the high fees resulted from network congestion.
Gas Fees Stabilize as NFT Activities Rise
Although users thought that gas fees would keep declining, following the decrease in volume has not happened yet. So, experts suggest that the reason may be due to the rise in the Non-Fungible Token sector.
Presently, many NFT projects are launching and holding auctions. The result of these activities will be more network congestion and an increase in transaction costs. This situation might continue unless Ethereum developers implement a scaling solution.
Layer 2 solutions & protocols with cross-chain links to Ethereum like Binance Smart Chain and Polygon have emerged in the past few months.
Now, many projects are moving to them in a bid to reduce high fees. Some of the projects that have successfully migrated include Sushiswap and Aavegotchi that recently integrated Polygon. The community anticipates that DeFi projects and other NTFS may soon join them.