Layer 2 solution, which is gaining traction, is lowering Ethereum’s gas fees to 6-month lows

Transaction fees for Ethereum have now dropped to their lowest level since December as activity on the blockchain gradually cools off while the trend towards using Ethereum Layer 2 solution protocols like Polygon (MATIC) is gradually strengthening, according to blockchain data and analysts .

As of June 27, the average transaction fee for the Ethereum blockchain is $ 4.42, according to Coin Metrics, which is significantly lower from the recent mid-May level of over $ 60.

Average transaction fees on Ethereum | Source: coin codes

Gas charges refer to the computational effort required to perform certain operations on the Ethereum network. Users have to pay a fee (in ETH) in order to successfully conduct a transaction on Ethereum. Ethereum is the second largest blockchain network after Bitcoin.

High gas fees are one of the biggest challenges for Ethereum at a time when network usage is increasing. That’s partly because decentralized funding (DeFi) became more popular around the same time that ETH prices were higher.

Analysts say lower gas charges are a natural response to the recent slowdown in the crypto market.

At the time of writing, ETH is trading at around $ 2,100, less than half of its all-time high of $ 4,382 reached on May 11th.

The congestion on the Ethereum blockchain has decreased along with the ETH price. According to Coin Metrics, the number of transactions on the network fell to around 1.1 million on June 27, from a high of around 1.7 million in May.

Total number of transactions on Ethereum | Source: Coin Metrics

In addition, data from CoinGecko show that the trading volume of ETH on the stock exchanges has also decreased significantly.

ETH trading volume | Source: CoinGecko

The operations on decentralized exchanges (DEX) are similar. According to data from Dune Analytics, weekly DEX volume fell below $ 20 billion for the week beginning June 21, from over $ 40 billion for the week beginning May 17.

Weekly DEX Trading Volume | Source: Dune Analytics

Vishal Shah, founder of the Alpha5 exchange, said:

“Low gas charges mean less network activity. And because Ethereum is the basis for so many DEXs, the speculative volume is getting smaller and smaller. “

At the same time, the increasing adoption of Ethereum Layer 2 solutions like Polygon has also helped reduce gas charges. Analysts are seeing a “significant number” of users moving from Ethereum to Polygon, and many Ethereum-based DeFi protocols such as Aave, Kyber Network, and SushiSwap have recently switched to this protocol.

According to Messari’s research analyst Ryan Watkins, another factor helping to lower gas charges is the move from ETH and DeFi traders to bots.

In the past, traders used the Priority Gas Auction (PGA) to raise gas fees in order to be first in the transaction queue. They recently switched to Flashbots, whereby miners and traders are moving their communication from the blockchain to private channels.

The order of transactions on Ethereum is very important. Especially for traders on DEX, a millisecond before another trader can have the opportunity to make thousands of dollars.

The Cumulative Maximum Extractable Value (MEV), or the amount a miner can earn on Ethereum, is a direct result of the ability to insert, remove, and rearrange transactions within a block. The MEV has been falling since early June and is now just over $ 700 million dashboard Flashbots MEV.

In short, Flashbots “helped alleviate the unnecessary gas wars that arbitrage bots wage to get ahead of each other,” Watkins said.

Minh Anh

According to Coindesk

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