Decentralized finance (DeFi) has been the protagonists of 2020, however, now that its boom slows down, this has an effect on the transaction fees in Ethereum. Specifically, a slowdown in cryptocurrency trading has occurred on decentralized exchanges. Consequently, this has helped alleviate congestion on the Ethereum blockchain.
In a way, this temporarily mitigates concerns that the network was being overloaded.
Did the DeFi boom slow down?
Recently, the prices of many of the most popular tokens in the decentralized finance sector, or DeFi, fell. SushiSwap’s SUSHI token, one of the most eye-catching debuts this year, is down 77% in the past 30 days, while lender DeFi Compound’s COMP tokens have lost 37%.
Likewise, on Uniswap, the largest decentralized exchange, or DEX, daily trading volumes have plummeted to $ 224 million, down from a record $ 954 million on Sept. 1.
What has happened in the DeFi sector to make it deflate in this way?
At the time, many analysts suggested that in the short term the DeFi sector looked like a bubble, but that deep down it had potential. However, at the moment they are talking about the low volatility of the cryptocurrency market in general.
A few weeks ago in CryptoTendencia we followed up on some events in which precisely what could happen in the DeFi sector was discussed. It is undeniable that DeFi has become popular with investors and traders alike.
In that sense, Connor Abendschein explained that the low volatility in the cryptocurrency market as a whole has contributed to reducing the volume and costs of transactions on Ethereum. Abendschein is an analyst at Digital Assets Data.
However, the resulting congestion had raised concerns for many people. Specifically, the main concern was the high fees for sending transactions through the Ethereum blockchain. It was even feared that this could push application developers to consider alternative networks.
What implications does this have for Ethereum?
The total collateral blocked on DeFi platforms jumped to a record $ 11.2 trillion in September, from less than $ 2 billion at the end of June, according to data website DeFi Pulse. Since then, the amount has dropped to about $ 10 billion.
The pullback has contributed to a drop in daily Ethereum transactions to 1.3 million from the last 2.5 weeks. And with less traffic on the network, congestion has been reduced, helping to lower fees that increased when users paid for priority transaction processing.
As the DeFi boom wanes, transaction fees on Ethereum appear to be returning to normal. However, this may be temporary, as in the event of a new DeFi protocol emerging these fees could skyrocket again.
Thus, the average cost of executing a transaction on the Ethereum blockchain has dropped to just over US $ 2, from a record high of US $ 14.58 on September 2. This according to data from Glassnode. However, the rate is still well above the 8 cent level that prevailed earlier this year.