Since October, multi-chain compatible DeFi platforms have seen record inflows of funds as investors and developers alike have tried to shun the network due to skyrocketing ethereum gas fees.
In fact, high transaction fees have been a thorny issue for blockchain projects since 2014. At the time, Ethereum co-founder Vitalik Buterin said in reference to Bitcoin that “it’s kind of ridiculous that internet money (BTC) shouldn’t cost $0.05 per transaction”. But I never thought that the problem of high ETH transfer fees is much more serious than BTC.
In November 2021, the simple act of authorizing a transaction on Uniswap could cost up to $50 in ETH as a fee (depending on the time of day).
Although more than 320,000 ETHs were destroyed in the past 30 days (a daily average of more than 10,000), and recently it has entered a state of deflation for several consecutive days, which has formed a strong support for the price of ETH, but the high gas costs have also discouraged many ordinary players.
Even a layer-2 solution, which is said to help with the fee problem, cannot get rid of the high fees caused by network congestion, as new users join the Ethereum ecosystem every day.
Users migrate to low-fee networks
As Ethereum fees continue to be high, more and more users are connecting their assets to the low-cost network that is compatible with the EVM (Ethereum Virtual Machine). Dune Analytics data shows that the total value locked in bridge agreements has been on an upward trend since the beginning of October.
As the chart above shows, the Ronin bridge has become one of the more popular protocols over the past month, thanks in large part to Axie Infinity users migrating assets to Ronin, a platform with lower fees.
(Picture) The agreements with the top cumulative income in the past 7 days
As can be seen from the above figure, Axie Infinity’s cumulative revenue in the past 7 days reached 32 million US dollars, ranking second only to Ethereum (383 million US dollars). The third-ranked protocol is PancakeSwap ($7.6 million), a DeFi protocol on Binance Smart Chain with far lower transaction fees than Ethereum.
Most of the winners in terms of TVL (total value locked) in the past week have been protocols on Ethereum competitors, or protocols that provide multi-chain capabilities in the Ethereum sidechain environment.
(Figure) Popular projects with rising TVL in the past 7 days
For example, Abracadabra.money, Yield Yak, Benqi, SpookySwap, and Loopring, all of which are multi-chain or Ethereum sidechain-compatible networks, have all seen significant increases in TVL over the past seven days. In the short term, the phenomenon of high transaction costs on the Ethereum network is expected to be difficult to change, and the trend of overflowing liquidity migrating to other blockchains may continue.
In fact, since April this year, various public chains or sidechains may have launched a series of subsidy measures to take advantage of the high cost of Ethereum: In April 2021, Polygon launched a $100 million DeFi fund "DeFi For All Fund", announcing that Provide support for DeFi projects in the next 2 to 3 years; in July, Terra announced the launch of a USD 150 million ecological fund to foster applications within the Terra ecosystem; in August, the Avalanche Foundation announced that it will launch a USD 180 million reward program AvalancheRush, Encourage more applications and assets to join the Avalanche DeFi ecosystem; Celo also announced the launch of the "DeFi for the People" project with over US$100 million in conjunction with Aave and Curve, aiming to realize the use of DeFi on the mobile side; on August 30, the smart contract platform Fantom announced the launch of an incentive plan, which will invest 370 million FTMs to better adjust the incentives among users, builders and the network.
Under such fierce competition, the fundamentals of the Ethereum network are still improving-compared with last year's Q3 data, the revenue of the Ethereum network in Q3 this year reached 1.96 billion U.S. dollars, an increase of 511% (of which 1.34 billion U.S. dollars was implemented in early August. EIP 1559 is destroyed). The settlement value was $536.48 billion, up 398%. Daily active addresses reached 457,402, an increase of 24.1%. The hash rate reached 705663 GH/S, an increase of 181%. In Q3 this year, the ETH supply inflation rate was 0.79% (1.11% in Q3 last year), a year-on-year decrease of 29%.
In addition, it is worth noting that the balance of ETH addresses on the trading platform continues to decrease. As of early November this year, only 9 million ETHs were traded on the trading platform. The reduced pressure on the supply side has also played an important role in supporting the price.
(The above content represents the author's personal point of view. It is intended to learn more about the industry and the market. It does not make any investment reference or advice.)
