With the expansion and success of the Decentralized Finance(DeFi), ETH appears to be undermined in most areas. The increase in Eth gas fees is a consequence of the DeFi boom. The Ethereum ecosystem seems to have reached its limits and its users are the ones suffering due to the massive increase in gas fees.
The popular cryptocurrency ETH deals with digital money and other data-friendly services. It is a type of e-currency that powers different applications. Everyone can use these applications called smart contracts. Due to the new projects increasing ten fold on DeFi ecosystem its expansion and growth seems limitless! Yield farming has contributed in this high fees. As the yield farmers pay ETH for moving their funds, more the number of farmers, more the number of transactions and slower the confirmations leading to a congestion and high fees!
The high amount of fees is a major concern for everyone as the unconfirmed transactions increase leading to network congestion and the fees goes high! It is like an inevitable loop. If this is not taken care of on priority then the ETH users will suffer in the long run!
Binance CEO Changpeng Zhao wrote his concern on Twitter stating how the high fees will cause problems for exchanges:
Effects of Defi Boom on Ethereum Ecosystem:
Here are some ways the DeFi boom is affecting ETH gas fees:
- Unconfirmed Transactions: ETH congestion has led to a higher number of unconfirmed transactions and it takes a longer time for confirmations.
- Smart Contracts Nonviable: Due to such high fees, smart contracts are often virtually unusable
- More Competition: Ethereum is facing a new competitor increasing each day. The platform already has no shortage of competition.
- Rising fee cost: The need for taking drastic measures is increasing each day. To counter the rising fee cost such measures are necessary. But they are putting tons of pressure on the ecosystem.
- Other Alternatives: Many users have withdrawn from ETH. So the network is facing significant loss as it is losing money along with its users.
Furthermore, rising gas prices for crypto gamblers means they will hold onto their cryptocurrency. They are hesitant to play with it and have started preferring to hold on to it. An increase in the gas fee due to the DeFi boom has caused significant harm. All casinos utilizing the Ethereum blockchain are under its influence.
The demise of Ethereum could be because of the rise of DeFi if the problem of transaction fees is not regulated. Each transaction at a crypto casino needs you to pay gas to the network; and the steep increase in this transactional amount is a major concern for the gamblers who love to use ETH.
In conclusion, it is being suggested that a longer-term solution should be there. Even one of the co-founders of Ethereum, himself has suggested several rounds. Yet, the wider crypto community is looking forward to the launch of Ethereum 2.0. We all hope and pray that this launch will solve this scaling problem once and for all. Defi will keep growing as there are no signs of it stopping anytime soon.