Why are Ethereum’s gas fees falling?
After all, it wasn’t that long ago that merely approving a transaction on the network cost an arm and a leg, let alone starting to swing your digital scythe in a yield farm. We’re now seeing moves for less than ten dollars.
The answer? NFTs.
Ethereum Gas Fees Falls
Even though the overall crypto market cap dropped early in the year, the market for NFTs—tokens used to prove ownership of other assets—showed no signs of slowing down. In January, OpenSea set yet another sales record, reaching $5 billion in revenue. A slew of celebrities, including Paris Hilton, Eminem, Tom Brady, and a slew of others, joined the fad.
Indeed, Ethereum volumes on OpenSea have plummeted during the last few weeks.
Ethereum volumes on OpenSea in millions. Source: Dune Analytics.
When you take a step back and look at the relationship, it becomes even more apparent. Volumes on OpenSea dropped from $247 million to $124 million from February 1 to February 6.
At the same period, the median gas price fell by half, from 134 gwei to 65 gwei.
We can double-check that the USD values in the first chart aren’t merely due to a decline in the price of Ethereum by looking at the price of ETH at the same time.
Recent data from Arcane Research, the average transaction cost on Ethereum is $15 (0.0045 ETH), which is the lowest since August 2021.
Source: Arcane Research Weekly Report
The downward trend over the last three months corresponds to the price of ETH, which has been falling alongside other cryptocurrencies since the turn of the year.
The price of ETH is currently at $2,500, but it has struggled to stay over $3,000 in recent days.
ETH/USD trades at $2,572. Source: TradingView
However, NFT sales on the Ethereum blockchain are increasing, with a 36.06% increase reported two days ago.
Related article | Ethereum Founder Puts Forward New Fix For High Gas Fees
Less On-chain Activity May Be Causing Lower Fees
It’s likely that greater adoption of L2 protocols like Optimism, Arbitrum, and Polygon has reduced on-chain transaction activity and lowered ETH fees.
The average gas cost to transact on the Ethereum blockchain is 0.0042 ETH or $10.89 per transfer at the time of writing. The figure was even lower during the weekend when the average gas price was recorded at 19 gwei, or less than $1, according to Gasprice.io.
The Ethereum blockchain has long been chastised for its exorbitant network costs, particularly when the network is overburdened.
Despite these limitations, Ethereum remains one of the most popular platforms, hosting hundreds of decentralized finance (DeFi) applications and non-fungible tokens (NFTs). Indeed, the euphoria around NFTs and DeFi was a big role in Ethereum gas fees reaching all-time highs last year.
However, as the overall crypto market entered a bear market, likely ushering in a new crypto winter, investor interest and transaction volumes in both of these trending sectors began to dwindle, resulting in reduced congestion and gas fees on the Ethereum network.
Featured image from Unsplash, chart from TradingView.com, Dune analytics, and Arcane Research