Ethereum fees today briefly touched a record high surging to $1,200. The magnitude of this quantum jump in fees can be gauged by the fact that Americans are being provided a stimulus check by the Federal Government for the same amount. It pays for their food, rent, personal expenses, and gas amidst the devastation caused by the Covid-19 pandemic. For Ethereum, it is the cost of just one transaction, a ridiculously high figure by any standards.
This unprecedented rise, albeit briefly, is attributed to an exponential spike in DeFi projects in recent weeks. DeFi or Decentralized Finance refers to the shift in economic parameters enabled by Blockchain networks and other decentralized technologies. DeFi is now one of the most active divisions in the Blockchain space that includes peer-to-peer payment systems, automated loans, and USD-pegged stable coins. It supports a range of use cases for individuals, developers, and institutions.
A rise in DeFi projects and applications is believed to have resulted in the sharp growth in Ethereum fees. The lure of quick money by crypto investors is another reason. A new Initial Coin Offering (ICO), which is now rare, is thought to have contributed to the push-in transaction fees.
Further, on another front, the DeFi exchange UniSwap has accounted for the highest fees paid at $3.1 million. UniSwap, a decentralized exchange where such funny-sounding tokens like Yam and YFI can be purchased, has found traders paying the highest Gas fees this month. The crypto market seems to have gone berserk in recent times.
Ethereum is the second-largest cryptocurrency platform behind Bitcoin in market capitalization. It incorporates smart contract functionality and is a decentralized open-source Blockchain. It is a base for over 260,000 different cryptocurrencies, including half of the top 100 by market capitalization. Ethereum has always had a volatile journey like Bitcoin in prices and fees, but the latest $1,200 for one transaction is almost unheard of.
While the fees have now cooled to below $200, it is still amazingly high considering that Ethereum is so popular and is on its way to becoming the next alternative monetary system. At the time of writing, the fee is hovering around $6 per transaction but is poised for another leap depending on the liquidity and speed of transfer.
There is a lesson to be learned in the extraordinarily high Ethereum transaction fees. It shows that the bubble of the current DeFi frenzy might go pop at any time, thereby remaining a game for the ETH rich for the present.