The Ethereum fee has finally dropped, but competitors such as EOS are starting to plunder the DeFi position (www.blockcast.cc)

The reason why EOS and other projects can grab a place in the DeFi liquidity mining movement is entirely because of the high transaction costs of Ethereum.

Original title: “The ETH fee has finally plummeted, but EOS and other projects have begun to grab DeFi positions “taking advantage of the danger”
Written by: Kyle

If the sharp drop in ETH prices in recent days has brought a good thing, then the transaction fees of the Ethereum network have finally plummeted.

According to the data of QKL123, last Wednesday, the average transaction fee of Ethereum reached 14.5 US dollars, which is the highest average transaction cost of Ethereum since 2018. Compared with the beginning of this year, it has increased by 7000%. At that time, the DeFi boom The future is coming.

But then, ETH fell from $487 on Wednesday to the lowest of $320 on Saturday, a drop of 34%. At the same time, the average transaction fee of the ETH network is also falling. As of September 6, the average transaction fee has fallen to $3.35.

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 will be delayed behind transaction fees in time. After falling to US$6.1 on September 4, the average transaction fee of Ethereum rebounded to US$7.5 on September 5 before falling to US$3.35 on September 6. The ETH price has been falling today until it hit a low of $312 in the morning on September 6, and then began to rebound above $350 on the 6th. Does this mean that the price of ETH will continue to fall in the short term?

Part of the reason why Ethereum network fees have risen to such a high level is due to increased activity on Ethereum. Since the rise of DeFi (that is, decentralized finance) this summer, people’s interest in DeFi tokens has continued to grow, and billions of dollars of crypto assets have been invested in DeFi projects. The total locked-in value of the DeFi ecosystem exceeded US$12 billion at the recent peak. This was mainly due to the promotion of liquidity mining mania, which also caused the average ETH transaction fee to hit a record high.

Nowadays, almost all major DeFi protocols are running on Ethereum (Ethereum), so the volume of transaction activity has increased, which in turn promotes the increase in transaction fees.

However, due to the increase in Ethereum network activity, not only has the transaction cost increased, but its network utilization rate has also hovered around 96%. If the utilization rate is higher, the network will be blocked and unusable. Many expansion solutions are still under development. For example, Ethereum 2.0 will implement a network upgrade and greatly increase its capacity. This upgrade is expected to be launched later this year.

High transaction fees greatly limit the development of DeFi applications

The DeFi project and its liquidity mining boom are the main factors that keep transaction costs at a high level. Liquid mining farmers need to pay Ethereum fees for transactions such as moving funds in and out of the token pool. The increase in the number of people involved in mining leads to more transactions and slower transaction confirmation times, which inevitably increases fees.

High transaction fees make many ordinary users discouraged when adopting DeFi. Whether they are participating in liquid mining or trading in DEX such as Uniswap, ordinary users are difficult to participate. For a while, DeFi and liquid mining have become “exclusive to large customers.” The early high returns of liquid mining have nothing to do with ordinary users.

High transaction costs also make it difficult to start many DeFi projects. Some DeFi projects have to suspend transactions while waiting for gas to return to normal levels. For example, on September 5, DEX Perpetual Protocal, a derivative product that has recently received attention, announced that the current high gas fee makes it impossible for many users 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 limit it. The mainnet launch will be postponed until the gas fee returns to normal and perp.fifi can run on the layer 2 solution of Ethereum or its sidechain.

High transaction fees make EOS and other projects an opportunity to take advantage of the DeFi movement

The popularity of DeFi liquid mining has made many blockchain projects outside of Ethereum feel “envious”, so they are vying to follow suit, with EOS and TRON being the most active. On September 4, EOS ecology recently launched the first liquidity mining project Diamond.finance. Although Diamond.finance has been suspected of many problems from the beginning, it is still difficult to block liquid mining participants. The project locked 8 million EOS in less than a day. As of press time, 15 million EOS have been locked. The reason why EOS and other projects can grab a place in the DeFi liquidity mining movement is entirely because of the high transaction costs of Ethereum. Compared with Ethereum’s liquidity mining which is not close to ordinary users, the liquidity mining of EOS and TRON can almost achieve zero-cost participation, and ordinary users only need to pay a small transaction fee to participate.

How does Ethereum overcome high transaction fees?

Ethereum founder Vitalik Buterin recently shared his position on resolving transaction fees.

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

“However, it is very difficult to safely increase network capacity. Ethereum nodes are already running close to their limits and are facing the risk of DoS attacks. Processing transactions is much slower than regular blocks, which slows down the network. Higher gas limits will exacerbate this.”

Buterin believes that the current feasible short-term solution is a new Ethereum improvement proposal, BIP2929, which “will increase the gas cost of some particularly sensitive operations and make it safer to increase the gas limit.” He believes that this is only a short-term solution that can reduce transaction costs by about 25%.

The medium-term solution he focuses on is the so-called “Rollup” technology, which is basically equivalent to Bitcoin’s lightning network.

“In an ecosystem with a large number of Rollups, the gas on the chain remains the same, and even 465 gwei may become the standard, but most transactions will be conducted within Rollup, and the actual fees paid by users will be hundreds of times lower.”

For a long-term solution, the sharding technology of Ethereum 2.0 will increase the capacity of the base layer by 100 times, which will reduce costs by tens of%.

“The only solution to high transaction fees is expansion. Now, Tether, Gitcoin and other applications are doing the right thing by migrating to ZK Rollup. I am excited about the upcoming Optimistic Rollup, which will expand Rollup to complete EVM contract.”

In any case, the high transaction fees are hurting the adoption and further development of DeFi applications, but as V God said, “Until rollups and sharding are completed, ETH has no choice but to endure high transaction fees.”

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