It’s been a big year for the DeFi protocols built on the Ethereum network. A year ago, the amount of capital locked in DeFi protocols was roughly $459 million; today, that figure has risen to $4.93 billion.
However, according to a report by CoinTelegraph, the rising popularity of DeFi platforms built on the Ethereum network is pushing transaction fees through the roof. Yesterday, the network charged $6.87 million in fees, a new all-time high; some users have reported fees as high as $99.
Yesterday, the average transaction fee was roughly $6.62, a significant increase from the previous all-time-high average transaction fee level of $5.52 in July of 2017.
Kain Warwick, founder and chief executive of Synthetix (SNX), told CoinTelegraph that high fees were impacting the growth of DeFi: “in the last three months, we’ve gone from an environment where DeFi was expensive to use and a little bit slow, to now, [where] for a lot of people it’s prohibitively expensive.”
Indeed, Reddit user Willy3380 wrote that “to require a transaction fee of 99 dollars is beyond ridiculous. This will be a major roadblock to growth if someone on the team does not address this. It was fine when fees were in the 10-30 range but to have a 99 dollar fee is a major issue.”
As Long as Ethereum 2.0 Upgrade Is Delayed, Ethereum May Rely on Second-Layer Solutions to Stay Competitive
Warwick said that in order to combat rising fees on the Ethereum network, Synthetix will be launching a second-layer scaling solution dubbed the ‘Optimism Virtual Machine’. The platform, which has already been trialed on a testnet earlier this year, will allegedly enable a couple of thousand transactions per second.
Why Ethereum Needs Layer 2 Solutions More Than EverGo to article >>
“We’re focused on the OVM and I think it’ll be sooner than ‘three to six months’ to be honest,” he told CoinTelegraph, referring to the platform’s launch. “I think we’ll be transitioning faster than that because it’s probably one of the top-three things we need to nail.”
At the moment, the Ethereum network is capable of processing roughly fifteen transactions per second. This is why transaction fees on the ETH network are capable of rising so high: during moments of high traffic, Ethereum experiences a major ‘bottleneck’ effect.
Delays in the launch of Ethereum 2.0, an upgrade that would increase the quantity of transactions that the Ethereum network was capable of handling. have made second-layer solutions like the OVM more important than ever.
However, while the second-layer solutions may allow Ethereum to maintain its status as the go-to blockchain for DeFI protocols, there is a chance that other blockchains could step in as the chain of choice for DeFi protocols in the future.
Indeed, Qiao Wang, head of product at Messari, said on Twitter that as long as the Ethereum 2.0 update continues to be delayed, Ethereum’s days as the king of DeFi may be numbered.
“I’ve changed my mind after using a dozen of Defi platforms. So long as ETH 2.0 is not fully rolled out, there’s an obvious opportunity for a highly scalable blockchain to dethrone Ethereum,” he said. “Paying $10 transaction fee and waiting 15 seconds for settlement is just bad UX.”
I've changed my mind after using a dozen of Defi platforms. So long as ETH 2.0 is not fully rolled out, there's an obvious opportunity for a highly scalable blockchain to dethrone Ethereum. Paying $10 transaction fee and waiting 15 seconds for settlement is just bad UX. https://t.co/vXAAFET3YK
— Qiao Wang (@QWQiao) June 28, 2020