Ethereum is no longer congested? Gas fees have dropped 65% from their peak

The growing prosperity of decentralized finance (DeFi) has brought new attention and confidence to the cryptocurrency space, with the total value locked in DeFi protocols increasing from $1 billion to $59 billion in less than a year, with the top five platforms accounting for $24.33 billion.

Currently, the Ethereum network hosts most of the top DeFi projects, and the increasing interaction between DeFi protocols is an important reason for the continuous increase in gas fees. Since November last year, gas fees have been steadily increasing, reaching a historical peak on February 23 this year, with the average transaction cost reaching a staggering 373 Gwei, which is about $11.72 at the current price of Ethereum.

Average Ethereum gas fee. Source: Etherscan

Gas fees have now dropped by 65% ​​since February 23, with the average fee falling to 131 Gwei on March 3. Data shows that gas fees were even below 70 Gwei during certain hours of the day.

DeFi transactions decline as market corrects

Looking at daily transaction volume data for decentralized exchanges (DEXs), we can find a possible reason for the drop in gas fees over the past two days.

Daily DEX trading volume. Source: Dune Analytics

Data from Dune Analytics shows that DEX trading volume has been declining since reaching a peak of $4.35 billion on February 23, and the 24-hour growth indicator for DEXs fell 50% on March 3.

According to Flipside Crypto data scientist Connor Higgins, fees have dropped over the past few days, but we shouldn’t attribute it to one specific reason. Higgins said that when we compare the high gas fees on February 23 to the overall over a longer time span, we can see that this value is actually an outlier.

Higgins said:

"On average, fees have indeed fallen, but it's more like gas prices are returning to normal after an unusually high day."

Ethereum hourly gas fee data source: Flipside Crypto

On February 22 and 23, the crypto market plummeted, with BTC falling by more than 20%. The market sell-off led to increased congestion on the Ethereum network. As shown in the figure above, the average gas fee on those two days was also significantly higher than the overall average. After the market stabilized, the gas fee returned to normal levels.

More and more NFT transactions cause congestion on the Ethereum network

Users of the Ethereum network may expect that as DeFi transactions decrease, gas fees will also drop significantly, but this is not the case. One of the reasons for the high gas fees may be the surge in non-fungible token (NFT) on-chain activities.

NFT project historical chart. Source: NonFungible

As more NFT projects come online and hold auctions, the problems of high transaction costs and network congestion on the Ethereum network may continue until scaling solutions are implemented on a large scale.

In the past two months, several Layer 2 solutions and protocols that can cross-chain bridge to Ethereum have emerged, such as Polygon and Binance Smart Chain, and many projects are migrating to these platforms as the best short-term solution to high gas fees.

Projects like Aavegotchi and SushiSwap have demonstrated how efficient these networks can become after integrating with Polygon. Other NFT and DeFi projects may follow suit, after all, the transaction costs and transaction speeds on Layer 2 are better than Ethereum.