Ethereum remains by far the largest smart contract platform in terms of market capitalization. Perched at number two in the market capitalization rankings, the network hosts dapps spanning multiple sectors.
While Metaverse, gaming, and NFT activity has since dissipated, DeFi is holding strong, given the steady recovery in total value locked (TVL), according to DeFiLlama.
DeFi Leads in Ethereum Gas Fee Generation
DeFi’s dominance over Ethereum shows that smart contracts and decentralized ledgers have revolutionized finance. To confirm this position, especially looking at gas fee trends and the main source over the years, the managing partner of DragonFly, turned to X, sharing data from CoinShares.
After the launch on Ethereum, CoinShares analysts note that gas fees continue to rise. There was a notable decline after the ICO madness of 2017 and 2018. Annual gas fees generated fell from $143 million in 2018 to $46 million in 2019.
However, after this contraction, which came after the crypto winter of 2018, the gas fees generated exploded. The upswing coincided with the popularity of ERC-20 tokens, allowing protocols to issue tokens, and the growing 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 the provision of liquidity. DEXs make up a large 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, as DeFi gained momentum on Ethereum during the last bull cycle of 2021, most of the gas fees came from DEXs.
DEX Gas Fees Decline as ERC-20 and Stablecoin Transfers Increase, Is Dencun’s Fault?
Interestingly, DEX gas fees continue to decline, from $2.4 billion in 2021 to $512 billion in 2024. Meanwhile, in September 2024, ERC-20 transfers rank second place, up from third, where they were from 2021 to 2024. 2023. Last year alone, ERC-20 transfers, a decent share of meme coins like PEPE and stablecoins, generated $223 million for validators.
Additionally, according to the data, Layer 2 gas fees continue to decline. In 2023, Ethereum generated $247 million in fees from layer 2 platforms like Arbitrum and Optimism. According to CoinShares, it stood at $90 million at the time of publication. The sharp drop is mainly due to the activation of Dencun.
Featured image from Canva, chart from TradingView
