With the expansion and success of Decentralised 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 suffer 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 tenfold in the DeFi ecosystem, its expansion and growth seem limitless! Yield farming has contributed to these high fees as the yield farmers pay ETH for moving their funds, the number of farmers, the number of transactions and slower confirmations leading to 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 go high! It is like an inevitable loop. If this is not taken care of on priority, 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:
The high ETH network gas fees is causing problems for most exchanges, running with $10-20 loss on each withdrawal.
Will have to adjust our withdrawal fees sooner or later. ?
— CZ Binance (@cz_binance) September 1, 2020
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 more unconfirmed transactions, which take longer to confirm.
- Smart Contracts Nonviable: Due to such high fees, smart contracts are often virtually unusable
- More Competition: Ethereum is facing a new competitors increasing each day. The platform already has no shortage of competition.
- Rising fee cost: The need to take drastic measures is increasing daily. 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- Other Alternatives: Many users have withdrawn from ETH.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 utilising 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 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.