Ethereum Logged Its Busiest Week on Record
It’s costing more to use Ethereum and that may be because more users are flocking to the platform than ever before, according to one key on-chain metric. Analysts say the growth of both transactions and the cost to process them is being driven by an increase in stablecoin usage and DeFi applications.
The seven-day moving average of the total amount of “gas” used in transactions on Ethereum’s blockchain rose to a record high of 61.12 billion on Monday, having surpassed the previous high of 60.07 billion reached in September 2019, according to data provided by the blockchain analytics firm CoinMetrics.
Gas is a token that powers Ethereum’s blockchain. It is the unit used to calculate the amount of fees a user needs to pay in order to transfer smart contract data or payments on Ethereum’s blockchain. Meanwhile, ether is the reward paid to miners and is equivalent to the amount of gas needed to execute a transaction.
Read more: Stablecoins Push Ethereum’s Transaction Count to Highest Since July 2019
“The increase in gas usage indicates a continuous growth in the use of Ethereum’s platform, as measured by the number of transactions, as well as demand for block space, as measured via gas per transaction,” said Wilson Withiam, research analyst at data provider Messari.
Ethereum’s transaction count recently hit a 27-month high of 938,265 and was up nearly 45% from lows seen in January as of Monday, according to Glassnode.
Tether and DeFi fuel growth
“As both tether and Decentralized Finance (DeFi) on Ethereum have exhibited phenomenal growth, Ethereum gas usage has skyrocketed to all-time highs,” Kyle Davies, co-founder and chairman at Three Arrows Capital.
Indeed, the use of the U.S. dollar-backed stablecoin tether (USDT) on Ethereum has increased sharply this year.
The number of daily USDT transactions on Ethereum have surged by 450% on a year-to-date basis, as per CoinMetrics.
Tether has been issued on Ethereum since November 2017 and the platform now holds 65% of tether’s total supply. “Almost $6 billion of USDT’s total supply is now on Ethereum, up from $1.5 billion in the beginning of 2020,” Bendik Norheim Schei, research analyst at Arcane Research, told CoinDesk.
Further, tether has 10 times more transactions on Ethereum than any other ERC-20 token. Meanwhile, as per Ether Gas Station, tether transactions have paid over $2.5 million worth of fees on Ethereum in the last 30 days. That makes USDT the largest “gas payer” on Ethereum.
Read more: First Mover: Cardano’s No Ethereum Killer Yet, but It’s Winning in Crypto Markets
Tether and stablecoins in general have witnessed phenomenal growth this year amid the coronavirus-induced volatility in traditional markets. Total supply of all stablecoins has surpassed the $11 billion mark this week, doubling its value since February, according to Messari data.
Even so, the increase in the gas usage is not entirely due to tether. Ethereum-based Decentralized Exchanges (DEXs) such as Kyber, Uniswap and IDEX have all experienced solid growth in transaction volumes this year.
Kyber Network registered a transaction volume of $609 million in the first five months of this year. That’s 1.5 times more than the volume of $388 million seen in 2019, according to the official blog.
“Another factor responsible for the increase in gas usage may be people gaming the network by paying more in gas fees in order to beat other transactions into a block to gain profit,” said Connor Abendschein, analyst at Digital Assets Data.
Miners prioritize transactions offering higher fees when the network faces congestion; that is, the number of transactions waiting to get confirmed by miners rises to high levels. That forces other users to offer higher fees.
Ethereum’s network has been facing congestion since early March, possibly due to increased price volatility and the surge in tether transactions. As of June 8, there were 19,922,385 unconfirmed transactions – up 225% from the March 1 tally of 611,872, according to blockchain data company Amberdata.
Validating the argument that network congestion could have led to increased gas usage is the fact that gas fees in general have been higher this year. “Gas per transaction recently reached its highest level since early 2018,” Messari’s Withiam noted.
Read more: ConsenSys Spins Up Staking Service in Anticipation of Ethereum 2.0
Nonetheless, the seven-day average of the daily Ethereum transaction count stood at 886,882 on Monday – well short of the record high of 1,244,335 reached in January 2018.
Also, more transactions could be coming from complex DeFi products, which involve higher computational expenses and therefore require bigger gas payments. “People are either paying more expensive computations or willingly paying more to beat other transactions,” said Abendschein.
Looking forward, the usage is likely to continue rising ahead of Ethereum’s much-anticipated switch from the proof-of-work mechanism to the proof-of-stake protocol. “Scalability on Ethereum will continue to be tested as we head into Phase 0 Eth 2.0 and beyond,” said Three Arrow Capital’s Davis.
The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.