Ethereum continues to hold the title of the largest smart contracts platform based on market capitalization. Currently positioned as the second-largest in market cap rankings, this network supports decentralized applications (dapps) across various industries.
While interest in areas like the Metaverse, gaming, and NFTs has waned, the Decentralized Finance (DeFi) sector is witnessing a consistent recovery in total value locked (TVL), as noted by DeFiLlama.
DeFi Dominates Ethereum’s Gas Fees
DeFi’s significant presence on Ethereum showcases how smart contracts and decentralized ledgers are transforming the financial landscape. To illustrate this influence, the managing partner at DragonFly shared trends on gas fees and their historical significance via X, underlining insights from CoinShares.
Since its launch on Ethereum, analysts from CoinShares have observed a steady increase in gas fees. An evident downturn occurred post the 2017-2018 Initial Coin Offering (ICO) frenzy, where annual gas fees plummeted from $143 million in 2018 down to $46 million in 2019.
Despite this contraction following the 2018 crypto downturn, gas fees rebounded significantly. This resurgence aligned with the rise of ERC-20 tokens, which enabled various protocols to create and distribute tokens along with the growing popularity of DeFi.
DeFi took off after the introduction of Uniswap, a decentralized exchange (DEX), in late 2018, and the establishment of the automated market maker (AMM) framework, enabling decentralized liquidity. DEXs play a crucial role in the DeFi ecosystem. According to DeFiLlama, popular protocols include DEXs such as Curve and Uniswap.
Between 2018 and 2020, the network’s fees primarily came from ERC-20 token transfers. However, with the surge in DeFi activity during the last bull market in 2021, the majority of gas fees began to originate from DEXs.
Decline in DEX Gas Fees Amidst Rise of ERC-20 and Stablecoin Transfers
Interestingly, gas fees from DEXs have seen a reduction, dropping from $2.4 billion in 2021 to $512 million by 2024. Meanwhile, ERC-20 transfers have risen to second place as of September 2024, climbing from their previous third position held consistently from 2021 to 2023. In the last year, ERC-20 transfers, including a substantial amount from meme coins like PEPE and stablecoins, generated $223 million for validators.
Furthermore, gas fees from layer-2 solutions are also experiencing a decline. In 2023, Ethereum earned $247 million from layer-2 platforms like Arbitrum and Optimism, which CoinShares cited as having decreased to $90 million at the time of their reporting. This notable drop is largely attributed to the activation of Dencun.
