Ethereum continues to be the leading platform for smart contracts by market capitalization. Holding the second position in the market cap rankings, the network supports decentralized applications (dapps) across various industries.
Although interest in the Metaverse, gaming, and NFT activities has waned, DeFi remains strong, witnessing a gradual recovery in total value locked (TVL), as reported by DeFiLlama.
DeFi Dominates Ethereum Gas Fee Revenue
The prevalence of DeFi on Ethereum underscores how smart contracts and decentralized ledgers have transformed the financial landscape. To validate this, particularly in terms of trends related to gas fees, the managing partner of DragonFly shared insights on X, posting information sourced from CoinShares.
Since its inception on Ethereum, CoinShares analysts have noted a consistent rise in gas fees. A significant drop occurred following the ICO boom of 2017 and 2018, with annual gas fees decreasing from $143 million in 2018 to a low of $46 million in 2019.
Following this downturn, which aligned with the crypto winter of 2018, gas fees surged dramatically. This increase was linked to the rising popularity of ERC-20 tokens, allowing protocols to issue their own tokens and the growing adoption of DeFi.
The revival of DeFi was spurred by the launch of Uniswap, a decentralized exchange (DEX), in late 2018 alongside the introduction of the automated market maker (AMM) model, which decentralized liquidity provision. DEXs constitute a significant part of DeFi. Looking at DeFiLlama, some of the leading DeFi protocols include DEXs like Curve and Uniswap.
From 2018 to 2020, the network’s fee generation primarily came from ERC-20 transfers. However, as DeFi gained traction on Ethereum during the last bull run in 2021, a significant portion of gas fees began deriving from DEXs.
Decline in DEX Gas Fees with Increased ERC-20 and Stablecoin Transfers: Is Dencun to Blame?
Interestingly, the fees from DEXs have seen a decline, falling from $2.4 billion in 2021 to just $512 million as of 2024. Meanwhile, as of September 2024, ERC-20 transfers have risen to second place from third, where they had remained from 2021 to 2023. Last year alone, ERC-20 transfers, including a substantial amount from meme coins such as PEPE and stablecoins, generated $223 million in fees for validators.
Additionally, fees from layer-2 solutions are also on the decline, according to available data. In 2023, Ethereum earned $247 million in fees from layer-2 platforms like Arbitrum and Optimism. CoinShares noted that by the time of publication, this amount had dropped to $90 million. This sharp decline is largely attributed to the activation of Dencun.
Feature image from Canva, chart from TradingView
