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So far in 2024, DeFi has surpassed $500 million in fees on ETH.
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The Uniswap exchange site is one of the most used platforms on Ethereum.
The adoption of the decentralized finance (DeFi) ecosystem on the Ethereum (ETH) network is undoubted. So much so that, for the fourth consecutive year, users who participate in this sector of the network have contributed the largest amount of commission expenses, according to data from a recent report by the analysis platform CoinShares.
Analysts detected that from 2017 to the present, the DeFi ecosystem has increased its prominence in Ethereum notoriously. Especially from 2021 to today, being the number one cause of commissions on this network.
As can be seen in the following graph of the Coinshares report, During the last four years this metric showed values that double to other categories. For example, fees for ETH or NFT transactions, ERC-20 tokens or the commissions of the second layer or L2 networks of Ethereum.
So far in 2024, commissions in the DeFi ecosystem have reached a figure greater than $500 million. The previous year, this measurement ended up slightly above $700 million.
Commission expenses in Ethereum by category from 2015 to the present. Fountain: CoinShares.
What does DeFi strength on Ethereum mean?
Since 2015, the Ethereum ecosystem has evolved from simple ETH transfers to a complex network that supports multiple applications and sectors, such as centralized exchanges (DEXs), stablecoins, NFTs, and second-layer networks to streamline the efficiency of the main network.
Although the data referring to the increase in DeFi adoption on Ethereum sounds like something positive, it may not be so positive. And the network Ethereum is not being driven by demand for its token native, but more due to the use of DeFi platforms and dApps.
According to the reportthe majority of gas rates come from activities linked to the trading digital assets on sites like Uniswap. This means that demand for the Ethereum network is largely driven by speculation rather than more sustainable use cases.
The value of ether depends on the demand for the services of the Ethereum network and for its price to be maintained or increased, the platform must support long-term durable use cases.
Could DeFi drive away retail investors?
These DeFi applications, such as DEXs (Uniswap for example), lending, yield farming and staking, involve more complex transactions that demand more network processing than a simple ETH transfer. Although ether is being used for these actions on the network, its demand in the market does not seem to be enough to drive the token to better prices.
In turn, these operations, by executing multiple smart contracts in a single transaction, They consume more gas, which increases rates.
Thus, high gas costs can discourage small investors or retail users to participate in DeFi. If the cost of executing a transaction is too high relative to the amount they wish to trade, it may make DeFi applications prohibitive for them.
For example, transaction fees on Ethereum range from Cryptocurrency-transaction-fees”>$2.50 and $50. These figures represent a much higher expense when compared to what happens in Solarium (SOL), with transaction fees varying between $0.005 and $0.01.
Thus, commission expenses in the DeFi sector on Ethereum would indicate that this network is being used by investors or institutions without high risk aversionand even less by individual users for whom it is not economical to operate on the network.
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