Ethereum fees drop drastically – Is low demand the reason?

• Ethereum’s fees have fallen to their lowest level since 2020.
• With growing supply in the past few weeks, Ether is back to being inflationary. 

Demand for Ethereum Mainnet  [ETH] has been slowing down over the past few months, driving fees to their lowest level since April 2020, on-chain data provider IntoTheBlock noted in a recent post on X (formerly Twitter).

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The data provider further found that during last week’s trading session, the Layer 1 blockchain recorded an average of 1,380 ETH in daily transaction fees. By the end of this weekend, the chain is projected to see only 1,190 ETH in daily average transaction fees, IntoTheBlock added.

These fees have significantly declined, plummeting by 90% from their peak in May and standing approximately 50% lower than the figures observed in October 2022.

Low demand for NFTs and low DeFi activity 

The steady fall in Ethereum’s fees since May is primarily attributable to the growing disinterest in non-fungible tokens (NFTs) and low activity across the decentralized finance (DeFi) protocols hosted on the blockchain network. 

Regarding NFT activity on Ethereum, this has been beaten down by the general decline in market interest in digital collectibles. According to data from CryptoSlam, it recorded a cumulative $1.7 billion in NFT sales volume in the first two months of the year, logging a month-on-month growth of 39% jump between January and February.

However, since February, this has trended downwards. With $143.06 million recorded in September, NFT sales volume on the network has plummeted by 85% in the last nine months. 

Source: CryptoSlam

A major indicator of decline in Ethereum’s DeFi vertical is its total value locked (TVL). According to data from DefiLlama, Ethereum’s TVL at press time was $21.54 billion.

After rallying to a high of $35 billion in April, the network’s TVL has since declined by 40%. On a year-to-date (YTD), Ethereum’s TVL has fallen by over 15%, and the last time it was spotted at its current level was in January 2021, data from DefiLlama showed. 

Source: DefiLlama

Further, assessing the trading volume of the decentralized exchanges (DEXes) housed within Ethereum offered deeper insights into the decline in the chain’s DeFi ecosystem.

According to data from Artemis, Ethereum’s DEX trading volume has dwindled since the 11 March peak of $21 billion. With only $840 million recorded in trading volume on 12 October, this has fallen by 96% in just six months.

Realistic or not, here’s ETH’s market cap in BTC terms

ETH supply climbs once again

As a result of the dwindling on-chain activity and declining gas fees, Ethereum’s supply has once again become inflationary. This means that new Ether tokens are being created and added to the circulating supply, which will put downward pressure on the leading altcoin’s price. 

According to data from Ultrasound.money, ETH’s supply has risen by over 10,000 ETH in the last week alone. 

Source: Ultrasound.money