Ethereum transaction fee is often considered a benchmark for on-chain activity. After reaching new heights, the transaction fee has fallen to its 49-day low.
A damp squib after a record run
The average transaction fee on the Ethereum network recently fell to its 49-day lows. The last time the transaction fees were this low was in early August. The network recently went on a record high in terms of transaction costs which made the network very expensive to use.
According to BitInfoCharts, the average transaction fee was $2.248. On August 23, it was barely four cents higher at $2.28. Since August 9, it slipped below $2.248 when the average transaction fee went down to just $1.94. In the month of September, Ethereum transaction costs hit new highs. On September 2, the average cost of the transaction was $14.6. About 10 days ago, the cost was $11.6. These remained the highest transaction cost on the network ever. It broke the previous record of $5.5 on July 2, 2018. Does it mean that people are buying Ethereum?
Why is the fee fluctuating?
Fees increase on the network when the demand for processing transactions is high. Miners are given more incentives in the form of a transaction fees when the demand is high. It is often used as a benchmark for increased activity. If the average transaction fee is decreasing, it is also a sign of decreasing activity on the blockchain.
The rise in transaction fee in summer could be attributed to the growing popularity of DeFi or decentralized finance. Decentralized stablecoins, DeFi lending protocols, and synthetic assets all gained momentum during the summer. As of today, at least $11 billion is locked up in the DeFi smart contracts. DeFi Pulse suggests that this number was just $1 billion in June. The Ethereum blockchain is the de facto leader in DeFi industry. However, the blockchain can only process about 14 transactions per second, has struggled to keep up with the rising demand for this new development in the blockchain industry.
Ethereum Transaction Fee Falls to 49-Day Lows