Despite 2020 being only halfway done, the Ethereum blockchain is set to achieve a new annual gas payment record.
USDT and DeFi Push Ethereum Gas Fees to New Heights
According to Wilson Withiam — a researcher at crypto analytics platform Messari — the total gas payment recorded on the Ethereum network so far in 2020 is less than 2,000 ETH from the record set back in 2018. Thus, it appears 2020 will be a record-setting year in terms of fee payments for the second-largest blockchain by market capitalization.
The growing popularity of decentralized finance (DeFi), as well as the increasing Tether (USDT) usage, are thought to be the major drivers of the ETH gas fee surge. The ETH-based DeFi market grew from $2B to $3B in total value locked (TVL) within the space of three weeks.
Liquidity mining on DeFi protocols like Compound (COMP) is arguably the new crypto craze with investors looking to earn high yields from lending and money markets. The booming Tether market has seen USDT “flippen” XRP to become the third-largest crypto by market capitalization.
Tether currently accounts for 78 percent of the market share for all ETH-based stablecoins. The USDT utilization on the Ethereum network also continues to grow with a further $300M transfer of Tether from the Tron (TRX) blockchain to the Ethereum.
If the growth in total gas fees continues on its current trajectory, then the network could see over 500,000 ETH in cumulative gas payments for the year. Such a massive amount in ETH gas fees points to a meteoric increase in Ethereum blockchain utilization.
L2 vs. “Ethereum-killers”
However, on the flip side, increasing Ethereum network activity leads to higher transaction fees which can act as a potential hurdle for smaller capacity users. Thus, the focus appears to be shifting to layer-2 (L2) scaling technology for the blockchain.
Commenting on the potential benefit of L2 solutions, Withiam tweeted:
“Layer-2 scaling technology is quickly becoming the go-to solution for high gas costs on Ethereum. These solutions aim to increase the economic density (“amount of value transacted per unit of block space”) of fees, thereby lowering the average cost of a transaction.”
The race for robust Ethereum scalability also comes amid the efforts of other blockchains looking to become “ETH killers.” Networks like Cardano (ADA) and Polkadot (DOT) appear to be on the frontlines of the smart contract platform wars.