In brief
- Transaction fees and miner revenue increased with the onset of "DeFi Summer."
- As network congestion has eased, transaction fees have declined.
Perhaps Yogi Berra was thinking ahead to Ethereum when he said, "Nobody goes there anymore—it’s too crowded."
The blockchain, which has garnered competition from networks taking aim at its high rates of congestion and transaction fees in the double digits, has swung the other direction.
Miner revenue from transaction fees has dropped over 85% from 15,000 ETH per day a little over a month ago, according to a new report from Glassnode. The seven-day average now sits at 1,900 ETH. "We have to look as far back as June 2020, before 'DeFi Summer', to find similar levels of transaction fees paid," wrote the analytics firm.
That was the same month DeFi lending protocol Compound released its COMP governance token, unofficially kicking off "DeFi Summer" and spurring demand for products that allowed people to lend, borrow, or swap assets with each other instead of going through a bank or other financial intermediary. Many DeFi protocols use Ethereum's infrastructure, increasing the popularity of the network while also driving up congestion.
Transaction fees rise along with demand for the network. The more demand there is to push through transactions, whether they be bids on an NFT or loans on Compound, the less available space there is for additional transactions to be included in a block. As a result, transaction fees go up. When there's more available space, fees go down.
As Decrypt covered earlier this month, there's more space available because DeFi activity has waned. Glassnode wrote on June 7 that "the recent month has been a historically large decline."
Back in June, $1-2 billion in value was floating around on Ethereum-based DeFi protocols, per data from DeFi Pulse. That number, known as "total value locked" (TVL), has risen to over $50 billion today. But TVL was as high as $86 billion on May 11, the day after Ethereum reached an all-time high exchange price of $4,165 on May 10.
After Ethereum's fall over the weekend to below $2,000, the network's miners—who process the transactions on the network in exchange for keeping the blocks they create plus fees—are being hit by a double whammy of lower fees and lower exchange rates.
According to data collected by BitInfoCharts, the average transaction fee on June 20 was $3.50; on May 12, it was $69.92. It hadn't been that low since January 1, when the price of a single ETH was $724.
It may be roomy enough for people to venture back. If they do, and if fees start to rise again, it'll be, as Berra said, "like déjà vu all over again."