As a researcher with years of experience in the blockchain and cryptocurrency space, I find it fascinating to witness the evolution of Ethereum and its dominance as the leading smart contracts platform. The growth of DeFi on Ethereum is particularly intriguing, given its impact on gas fees generation over the years.
Without a doubt, Ethereum continues to lead as the foremost platform for smart contracts, based on its market capitalization. In fact, it’s currently holding the runner-up spot among all cryptocurrencies in terms of value. This versatile network is home to a variety of decentralized applications (dApps) spanning numerous industries.
Despite a decline in popularity for the Metaverse, gaming, and NFTs, Decentralized Finance (DeFi) persists as it observes a gradual increase in the total value locked (TVL), based on data from DeFiLlama.
DeFi Leads In Ethereum Gas Fees Generation
The dominance of DeFi in Ethereum goes on to show smart contracts and decentralized ledgers have revolutionized finance. To confirm this position, especially looking at trends in gas fees and the primary source over the years, the managing partner of DragonFly, took to X, sharing data from CoinShares.
Following its debut on Ethereum, CoinShares analysts have pointed out that gas fees have persistently increased. After the ICO craze of 2017 and 2018, there was a significant decline. The annual gas fees generated dropped dramatically from $143 million in 2018 to as low as $46 million in 2019.
Following the crypto winter of 2018, there was a significant increase in gas fees due to a surge in momentum that corresponded with the growing popularity of ERC-20 tokens. This allowed protocols to mint tokens and contributed to the increasing acceptance of Decentralized Finance (DeFi), as more people adopted it.
The surge in Decentralized Finance (DeFi) can be attributed to the unveiling of Uniswap, a decentralized exchange (DEX), towards the end of 2018, and the emergence of the Automated Market Maker (AMM) system, which democratized liquidity provision. Decentralized exchanges (DEXs) constitute a significant portion of DeFi. Notably, among the leading DeFi protocols, as per DeFiLlama, are DEX platforms such as Curve and Uniswap.
Between 2018 and 2020, the network primarily collected fees from transactions involving ERC-20 tokens. But as decentralized finance (DeFi) gained traction on Ethereum during the recent bull market in 2021, the majority of transaction fees have shifted to decentralized exchanges (DEXs).
DEX Gas Fees Fall As ERC-20 And Stablecoin Transfers Grow, Blame Dencun?
Interestingly, gas fees from DEXs continue to fall, dropping from $2.4 billion in 2021 to $512 billion as of 2024. Meanwhile, as of September 2024, ERC-20 transfers are in second place, up from third, where it has been from 2021 to 2023. Last year alone, ERC-20 transfers, a decent portion from meme coins like PEPE and stablecoins, generated $223 million for validators.
Moreover, data shows that gas fees on layer-2 networks are significantly decreasing. In 2023, Ethereum earned approximately $247 million in fees from platforms like Arbitrum and Optimism, but this figure dropped to around $90 million by the time CoinShares published their report. This substantial decrease is largely attributed to the activation of Dencun.
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2024-09-30 23:41