Ethereum remains by far the largest smart contract platform by market capitalization. Ranked second in the market capitalization leaderboard, the network hosts dapps across multiple sectors.
According to DeFiLlama, following the demise of the metaverse, gaming, and NFT activity, DeFi is expecting a steady recovery in Total Value Locked (TVL).
DeFi Drives Ethereum Gas Fee Generation
DeFi’s dominance on Ethereum continues to show how smart contracts and distributed ledgers have revolutionized finance. To confirm this position, and specifically to look at gas price trends and primary sources over the years, DragonFly’s managing partners chose X to share data from CoinShares.
Since launching on Ethereum, CoinShares analysts note that gas fees have continued to increase. There has been a notable decline since the ICO craze of 2017 and 2018. Gas bills incurred annually decreased from $143 million in 2018 to $46 million in 2019.
However, following this contraction that occurred following the cryptocurrency winter of 2018, gas bills exploded. The increase in momentum has coincided with the popularity of ERC-20 tokens, allowing protocols to issue tokens and increasing DeFi adoption.
The resurgence of DeFi follows the launch of Uniswap, a decentralized exchange (DEX) in late 2018 and the introduction of an automated market maker (AMM) model that decentralizes liquidity provision. DEX is a big part of DeFi. Looking at DeFiLlama, some of the most popular DeFi protocols are DEXes like Curve and Uniswap.
From 2018 to 2020, the network earned fees from ERC-20 transfers. However, as DeFi gave Ethereum a boost in its final bull cycle of 2021, most of the gas fees came from DEXs.
DEX gas costs fall as ERC-20 and stablecoin transfers increase, and is Dencun to blame?
Interestingly, gas fees for DEXs have continued to fall, falling from $2.4 billion in 2021 to $512 billion as of 2024. Meanwhile, as of September 2024, ERC-20 transmission has risen from 3rd to 2nd place from 2021 to 2024. 2023. Last year alone, ERC-20 transfers, a significant portion of meme coins like PEPE and stablecoins, generated $223 million for validators.
Additionally, data shows that Layer 2 gas prices continue to fall. In 2023, Ethereum generated $247 million in fees from layer 2 platforms such as Arbitrum and Optimism. At the time of publication, it was worth $90 million, according to CoinShares. The sharp decline is mainly due to the activation of Dencun.
Featured image from Canva, chart from TradingView