The increasing popularity of decentralized finance (DeFi) has brought new attention and optimism to the cryptocurrency sector with the total value locked across all protocols increasing from $ 1 billion to $ 59 billion in less than a year and the top 5 platforms account for $ 24.33 billion of the total value.
The increase in gas rates has been one of the most notable results of the increasing interaction with DeFi protocols and currently the Ethereum (ETH) network is home to most of the major DeFi projects. Gas rates have risen steadily since November 2020 and peaked on February 23 chen the average cost of a transaction reached 373 Gwei, which is approximately $ 11.72 at the current price of Ether.
Since February 23, rates have decreased by 65% with the average cost falling to 131 Gwei on March 3 and data shows that certain hours of the day offer rates below 70 Gwei.
DeFi transactions decreased as the market corrected
One possible source of the decline in gas fees seen in recent days can be found by looking at the daily volume of decentralized exchanges (DEX).
Dune Analytics data shows that Trade volume in DEXs has declined since peaking at $ 4.35 billion on February 23 and the daily growth metric for DEXs declined by 50% on March 3.
According Connor Higgins, Flipside Crypto data scientist, Rates have dropped in recent days, but rather than attribute them to a specific cause, Higgins said the high rates observed on Feb. 23 were an outlier compared to the overall average over a longer period of time.
“On average, rates fell, but it appears they are normalizing after a day of unusually high rates.”
As seen in the graphic above, Gas rates were significantly higher than the average between February 22 and 23 when network congestion increased due to a market-wide sell-off that saw the price of BTC fall by 23.6% and the prices of altcoins also drastically corrected. After the market stabilized, gas rates returned to their normal average.
Increase in NFT transactions on the Ethereum network
Those using the Ethereum network might have expected to see a more significant decrease in gas rates as DeFi transactions declined, but this has not been the case. One reason that fees remain high could be the recent surge in activity in the non-fungible token (NFT) sector.
As more and more NFT projects launch and conduct auctions, high transaction costs and congestion are likely to continue on the Ethereum network until a widely integrated scaling solution is implemented.
Layer 2 solutions and protocols with cross-chain bridges to Ethereum, such as Polygon and Binance Smart Chain, have emerged in the last two months and many projects are migrating to these platforms as the best short-term solution for high rates.
Projects like Aavegotchi and SushiSwap have shown how effective these networks can be after their recent integrations with Polygon, And other NFT and DeFi projects are likely to follow suit, as transaction costs and speeds are higher than Ethereum.
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