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While the crypto market continues to fascinate with its dynamism and unpredictability, Ethereum, the pillar of decentralized finance, finds itself at the heart of a new mystery. For weeks now, a strange dissonance has gripped the network: transaction fees are exploding, with levels rarely seen since the switch to proof-of-stake, while the number of active accounts is dropping to an all-time low in a year.
Transaction fees explode despite a drop in activity
In early September 2024, Ethereum’s average transaction fees fell below the symbolic $1 threshold for the first time since July 2020. However, within a few weeks, these fees skyrocketed. On September 21, 2024, the seven-day moving average of fees reached $3.52, more than triple the $0.85 seen at the beginning of the month. Such an increase coincides with an increase in the burning of Ethereum, which also exploded, from 80.27 ETH to more than 1,360 ETH in just three weeks, a jump of 1,600%. This situation is all the more surprising because the activity on the network seems to be slowing down.
The sudden increase can largely be attributed to increased gas consumption by some very active smart contracts on the network. These contracts include Uniswap, both in its original version and the V2 variant, as well as Telegram-focused trading bots such as Maestro and Banana Gun. Also major contributors to this increase in fees are Ether transfers and crypto-transactions associated with Tether (USDT) and USD Coin (USDC) stablecoins. Despite this increase in costs, network usage, as measured by the number of active accounts, continues to decline.
Significant decline in active accounts: a warning sign?
As fees rise, Ethereum is experiencing a significant drop in the number of active accounts. Indeed, data as of September 21, 2024 shows that active accounts are down 11% compared to the beginning of the month with around 385,000 users, the lowest level since December 2023. This situation could reflect a lack of interest in Ethereum, which faces rising fees, while overall network activity decreases.
The decrease in active accounts can also be explained by the decrease in income for Ethereum stakers. In fact, the latter have seen daily gains that have been declining for several months. With increased competition from other blockchains and more economical alternatives, Ethereum is forced to adopt new strategies to limit this decline and regain user engagement. The outlook remains uncertain in the short term, especially since the general sentiment in the crypto market does not seem to be in favor of Ethereum.
The rise in transaction fees on Ethereum (combined with the decline in the number of active accounts) represents a pivotal period for the blockchain. While this situation could boost the profitability of some network players, it also risks slowing adoption by new users and encouraging migration to competing solutions.
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A graduate of Sciences Po Toulouse and holder of the blockchain consultant certification issued by Alyra, I joined the Cointribune adventure in 2019. Convinced of the potential of blockchain to transform many sectors of the economy, I made a commitment to raise awareness and inform the general public about this ever-evolving ecosystem. My goal is to enable everyone to better understand blockchain and take advantage of the opportunities it offers. I strive every day to provide an objective analysis of current events, decipher market trends, convey the latest technological innovations, and put into perspective the economic and social issues of this ongoing revolution.
DISCLAIMER OF LIABILITY
The comments and opinions expressed in this article are solely those of the author and should not be considered investment advice. Before making any investment decision, do your own research.