Ethereum remains by far the largest smart contract platform by market capitalization. The network ranks second in the market capitalization rankings and hosts dapps spanning multiple sectors.
While the Metaverse, gaming and NFT activities have since disappeared, DeFi remains standing, watching the steady recovery of the total value locked (TVL), according to DeFiLlama.
DeFi leads in generating Ethereum gas rates
The dominance of DeFi in Ethereum shows that smart contracts and decentralized ledgers have revolutionized the financial sector. To confirm this point of view, especially looking at the trends in gas rates and the primary source over the years, DragonFly’s managing partner turned to X: to share data from CoinShares.
Following the launch in Ethereum, CoinShares analysts note that gas costs continue to grow. There was a notable dip after the ICO mania of 2017 and 2018. Annual gas fees generated dropped from $143 million in 2018 to just $46 million in 2019.
However, after this contraction, which occurred after the crypto winter of 2018, the gas fees generated exploded. The momentum coincided with the popularity of ERC-20 tokens, which allowed protocols to issue tokens, and the increasing adoption of DeFi.
The resurgence of DeFi follows the launch of Uniswap, a decentralized exchange (DEX), in late 2018 and the introduction of the Automated Market Maker (AMM) model, which decentralized liquidity provision. DEXs are a big part of DeFi. Some of the most popular DeFi protocols, looking at DeFiLlama, are DEXs like Curve and Uniswap.
From 2018 to 2020, the network derived its fees from ERC-20 transfers. However, when DeFi picked up steam on Ethereum in the last bull cycle of 2021, most of the gas fees have come from DEXs.
DEX Gas Costs Fall as ERC-20 and Stablecoin Transfers Grow, Blame Dencun?
Interestingly, DEX gas fees continue to decline, from $2.4 billion in 2021 to $512 billion in 2024. Meanwhile, as of September 2024, ERC-20 transfers are in second place, from third, where it was between 2021 and 2024. 2023. Last year alone, ERC-20 transfers, a fair share of meme coins like PEPE and stablecoins, generated $223 million for validators.
Additionally, Layer-2s gas prices continue to decline, according to data. In 2023, Ethereum generated $247 million in fees from layer 2 platforms such as Arbitrum and Optimism. According to CoinShares, it was $90 million at the time of publication. The sharp decline is mainly due to the activation of Dencun.
Feature image from Canva, chart from TradingView