Ethereum gas fees drive investors away from DeFi

The decentralized finance (DeFi) sector has attracted great attention since early 2020, thanks to the advanced innovation and high-return opportunities it has offered to cryptocurrency investors.

Despite all these attractive features, record levels of gas prices show that the industry still has some problems. The absence of a suitable layer 2 solution can drive small investors away from DeFi.

Investors trying to trade on Uniswap or validate a new token on their favorite DeFi platforms may notice that these transactions are creating a dent in their ETH wallet.

Ethereum average gas fee. Source: Etherscan

Etherscan data shows that while gas charges are not as high as seen in 2020, they are extremely high compared to December last year. The rise in gas prices coincided with the rise in Ether price.

There is one group that has benefited from the sharp rise in network charges: Whales.

When wallets with at least 20 ETH are examined during 2020, it can be seen that more Ethereum transactions are made compared to small wallets.

Number of transactions based on wallet size in 2020. Source: Flipside Crypto

Since gas charges represent the cost of using smart contracts rather than being calculated by transaction size, whales are more likely to transact during rush hour as they are less affected by the gas fee increase.

For DeFi to continue to grow, the gas fee problem in the Ethereum network must be resolved.

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