The price of Ethereum (ETH) exceeds $2.140 per unit and its commission fees are once again above $20.
Ethereum (ETH) reached a new all-time high of $2.146 per unit, showing a 10% increase in its value in the few days so far this month. The value of the second cryptocurrency most important and used market is increasing as decentralized finance ecosystems (DeFi) also grow in value. To date, the DeFi developed in this blockchain contain a liquidity greater than the 61.000 million of dollars, being Uniswap, the decentralized exchange (DEX) with greater liquidity; about $9.090 billion, according to data shown by DappRadar.
However, the rise in the price of ether is also accompanied by an impressive increase in Gas prices. The network that is already known for its extravagant and unstable Gas costs is once again becoming a crossroads for its retail investors and common users. Commission rates on ETH once again exceeded $21 per transaction, although at the time of writing this note the price is around $16,3.
For some time now, crypto industry analysts have been explaining the relationship between the demand for Ethereum, the price of the cryptocurrency and Gas costs. DCinvestor, an ETH investor known under that pseudonym, recently said that the more demand there is for the network, the more its price will rise; and therefore, also the Gas prices.
The investor refers to the fact that a price increase in ETH or any other blockchain token is a product of the increase in the use activity of that cryptocurrency; and in the case of networks like Ethereum, it also means that the more demand there is, the more congestion there will be, due to the limited size of Gas to process transactions in each block, which in turn increases the cost of the transaction.
Thus, when the price of the second most important cryptocurrency in crypto markets reached a new all-time high, its commission rates accompanied the rise like foam.
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DeFi, an ecosystem growing in value
As we said at the beginning, decentralized finance ecosystems are growing in value significantly. Although the frenzy caused by non-fungible tokens (NFT) overshadowed the growth of DeFi, these ecosystems have not stopped attracting investors and users, who deposit liquidity within these protocols every day.
DeFi is growing again, leading several protocols to grow their deposited value. Uniswap and SushiSwap are the largest DEXs in this sector, with $9.000 billion and $4.600 billion in TVL respectively. Also, decentralized lending protocols Aave, MakerDAO, and Compound have seen quite significant growth so far this year. To date, these protocols together contain liquidity of more than $21.000 billion.
The popularity of these ecosystems is due to the fact that DeFi emerged as an alternative to the centralized financial system of banks, allowing millions of people to have access to financial products directly and without limitations, even if they were not banked.
Most of these ecosystems are developed on the Ethereum blockchain, which is why demand for this network has grown significantly since the middle of last year. At the beginning of June, when DeFi maintained liquidity close to $1.130 billion, ETH maintained a value of $230 per unit. Since then, the value of ETH has grown by over 900%, as the total value locked (TVL) within DeFi has also increased significantly.
The growth in ETH value and increased liquidity locked in DeFi has boosted gas fees, which have grown more than 3.700% since the middle of last year.
Scalability for Ethereum
The large increase in Gas fees on Ethereum prompts developers to come up with new alternatives to solve the high gas costs, which have become unpredictable on the network, preventing investors and users with small investment portfolios from being able to operate and interact with the protocols and applications that are developed within this blockchain.
One of the most promising improvement proposals that will be implemented in the near future is the EIP-1559, although the blockchain analysis firm Coin Metrics points out that this proposal will not be a feasible solution in the medium or long term, as long as the network scalability problem is not resolved. Also, the activation of the Optimistic Rollups protocol is something that is expected to happen within Ethereum very soon, to help the network scale “100 times”, as reported Vitalik Buterin, co-founder and developer of Ethereum.
Finally, Ethereum's biggest update, Ethereum 2.0, will be the one that definitively solves the scalability problems that this network faces, and that make a space within a block so expensive. ETH 2.0 will migrate the blockchain to the proof-of-stake protocol (PoS) to replace miners with validators and optimize the processing of transactions in the network, making it grow in performance and scalability.
At press time, Ethereum has a market capitalization of almost $250.000 billion.
Continue reading: Optimistic Rollups, the imminent solution to scale Ethereum “100 times”
