Ethereum’s fees have surged to new highs as the price of Ether exploded above $1,700 to set new highs. Also, the fees associated with using some complex DeFi protocols have soared above $1,000.
Ethereum’s gas fees also spiked to record highs which rendered most of the decentralized finance protocols unusable for the casual investors. After rising by about 20% in the past 24 hours, average Ethereum transaction fees are currently sitting at a record $17.67.
With most of the DeFi projects needing the execution of complex smart contracts, some reports fees are linked with using protocols that need complicated transactions which now surpass $1,000. Amid all this chaos, Twitter-user “Olive Allen” reported approximate gas fees of almost $5,000 to accept a bid on Rarible.
— Olive Allen (@IamOliveAllen) February 3, 2021
When analysts checked earlier on, one big transaction on Synthetix was estimated at above $1,100. But, the protocol is currently undergoing an upgrade that might affect these estimates. Even the simple swaps using decentralized exchanges Uniswap and SushiSwap cost between $40 and $75.
Tried a $75 swap on sushi earlier. Gas fees were $74 on sushi swap and $37 on uniswap. Zero logical sense to even swap anything with fees like that.
— Kole Pfeiffer (@6pointd) February 4, 2021
While responding to the high fees, ConsensusRough podcast co-host ‘Checkmate’ warned the decentralized finance (DeFi) users to consider the expense involved in executing smart contracts before they invest.
He shared the screenshot of a user that alleges to show estimated gas fees surpassing the price of Ether. While all this could have been faked, it is widely in line with similar reports.
Think very hard about whether you will be able to unwind your defi positions when the time comes to sell and gas fees are exponential.
Worth considering this risk because inability to exit is increasingly looking to be a reality. https://t.co/m9d09pUe0a
— _Checkmate 🔑⚡🎟🌱checkonchain.com (@_Checkmatey_) February 3, 2021
Ethereum is not alone in suffering congestion, the bitcoin’s average fees at the moment exceeds $14 too.
Despite the skyrocketing costs linked to using the bitcoin and ethereum networks, traders seem highly bullish with Ether posting a new all-time high of $1,700 at about 2 am UTC.
Since exploding to new price highs on February 2, Ether has gained about 14%. Bitcoin is also rallying, testing $38,000 after gaining about 6% in the past 24 hours.
Ether’s record fees are indicating the utility of second-layer scaling solutions coming ahead of Ethereum’s Eth2’s overhaul. Synthentix is today in a staged migration to Optimistic roll-ups to alleviate gas prices, while other platforms are exploring the rival layer-two solutions including xDai and scalable layer-one networks like Polkadot.
Chandler Song, Ankr Network CEO and co-founder, recently commented on the crypto bull run describing it as:
“expos[ing] a lot of vulnerabilities of the Ethereum network, which most DeFi projects are built upon.”
Nonetheless, DeFi users may not need to wait until Eth2 to see a reduction in gas fees on the Ethereum mainnet, with developer Tim Beiko acknowledging some significant progress on the EIP-1559 testnet in January.
EIP-1559 was proposed by Vitalik Buterin and Eric Conner in 2019. They recommended the introduction of a burn mechanism to minimize fee volatility. Nonetheless, with the proposal of reducing miners’ revenues to small tips sent alongside a burned base fee, EIP-1559 has now been met with considerable resistance from Ethereum’s mining community.
Grayscale recently speculated that EIP-1559 could create a ‘positive feedback loop’ for Ethereum’s price should the fee expenditures surpass the rate of new supply’s creation.