The unprecedented use of the Ethereum network and gas charges pose a risk to DeFi expansion

The number of Transactions on the Ethereum network more than doubled in 2020 And now it’s practically the same as the January 2018 all-time high.

As shown in the graphic below, The number of transactions has doubled to 1.23 million per day in the past six months.

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The unprecedented use of the Ethereum network and gas charges pose a risk to DeFi expansion
The unprecedented use of the Ethereum network and gas charges pose a risk to DeFi expansion

Ethereum 7-day average daily transactions

7-day average of daily transactions for Ethereum. Source: CoinMetrics

This situation may seem very bullish at first, but this is something you need to remember Both EOS and Tron (TRX) started out as ERC-20 tokens before launching their own mainnet and running completely independent blockchains..

A similar chain migration takes place at USDT from Tether, a stable coin that recently secured a market cap of $ 12 billion.

Tether was created under the OMNI protocol that works on the Bitcoin network and most USDT tokens They switched to the Ethereum network to avoid increasing transaction fees for Bitcoin (BTC).

Average 7-day Ethereum transaction fee

7 days average transaction fee for Ethereum. Source: BitInfoCharts

When fees for Ethereum increased in 2019, a similar move occurred last year Some owners of Tether (USDT) chose the Tron network.

This happened during The average transaction fees for Ethereum tripled to $ 0.14 in July 2019although this seems insignificant compared to the current $ 3.

Current Tether USDT balance

Current USDT balance for Tether. Source: tether

The Tron network currently has half the USDT amount under ERC-20 and its share is expected to increasetaking into account the recent fees of the Ethereum network.

For comparison, Tether’s USD was dominated by Omni in August 2019, while Tron accounted for less than 3% of its market cap.

Tether USDT balance sheet in August 2019

Tether USD balance as of August 2019. Source: Tether

Especially USDT is currently in circulation on the EOS, Liquid, Algorand and Bitcoin Cash SLP networksalbeit on a much smaller scale.

Can Ethereum-based networks survive increasing transaction rates?

In order to better assess the likelihood of a further exit from the Ethereum ecosystem, it should be analyzed what type of transactions are taking place. For example, stable coins have less incentive to keep them during periods of network downtime.

On the other hand, Switching networks in DeFi apps like Maker (MKR) and Compound (COMP) seems less obvious.

Competing smart contract platforms have their drawbacks and a much smaller ecosystemas reported by Cointelegraph.

Top weekly active Ethereum tokens

Top weekly active Ethereum tokens. Source: Etherscan

Etherscan data shows the increasing use of DeFi (Decentralized Finance) applications in the Ethereum networkBut how sustainable are these numbers given the current level of interest rates?

DefiPulse data shows this The total locked in DeFi has increased impressively five times in the past 90 days. While amazing, how many of those Ethereum transactions are exactly related to that number? (YFI) transaction amount and number (YFI) transaction amount and number. Source: Etherscan

According to data from Etherscan (YFI) has made an average of 3,400 transactions with 15,700 token transfers per day over the past week.

Considering the price of $ 5,175 over that period Each transfer had a median value of $ 23,900This means that a commission increase of $ 3 shouldn’t be an obstacle.

To determine if YFI was anything unusual, it is necessary to analyze the Synthetix Network Token (SNX), another DeFi contender among the 20 most active Ethereum contracts.

Transaction amount and number of the Synthetix Network Token (SNX)

Transaction amount and number of the Synthetix Network Token (SNX). Source: Etherscan

According to the graphic above Last week, SNX made an average of 2,800 transactions with 8.3 million token transfers per day. Considering the price of $ 4.70 over that period Each transfer had an average value of $ 13,900. This is yet another indication that the increased fees on the Ethereum network did not have an exaggerated impact.

What about oracles?

Chainlink (LINK) is the largest token for Oracle solutionsand while it is interoperable across multiple chains, it is actually an Ethereum ERC-20 token.

According to Cointelegraph, the increase in usage appears to be behind an impressive 88% increase in two weeks.

Transaction amount and number of Chainlink (LINK) transactions

Number and number of Chainlink (LINK) transactions. Source: Etherscan

LINK had an average of 35,000 daily transactions and 34 million tokens transferred over the past week. Considering the price of $ 13.40 over that period Each transfer was worth an average of $ 13,000.

This analysis is another positive indicator that Despite the recent increase in fees on the Ethereum network, some of the major Oracle and DeFi apps are able to resistat least for a moment.

Not all smart contracts can thrive at current fee levels

Rising network fees for Ethereum have accelerated the development of second-layer solutions in some DeFi applications.

While the overall impact could be positive for Ethereum, it could certainly prevent applications from migrating to competing networks does not offer a good outlook for investors and the general public.

The development of Ethereum 2.0 is under immense pressure to offer a network that can better cope with the rapidly growing demand for stable coins, oracles, decentralized exchanges and DeFi.

The most important question to ask yourself now is: Are current Ether (ETH) owners and network developers adapting to the current restrictions?

The answer to that might depend on what competing cryptocurrency networks can offer In addition to tracking the price of Ether, prudent investors should also keep an eye on network activity.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement is associated with risks. You should do your own research when making a decision.

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