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Saturday, September 5, 2020

DEFI BOOM TRIGGERS ETH GAS COSTS, THREATENS SMART CONTRACT ELIGIBILITY


 


   The increased transaction fees for the Ethereum network, which reached a recent high, are a direct consequence of the increasing number of defi projects and yield farming. The yield farmer has to pay ETH for transactions such as moving funds in and out of the pool. Increasing numbers of yield farmers result in more transactions and slower confirmations make higher costs inevitable.


 

Such high costs now threaten the viability of some smart contracts and decentralized (defi) financial applications.


According to a bulletin produced by Boxmining, defi blasts, like the 2017 ICO bubble, have helped spark competition between the different protocols. The bulletin selected one project, Sushiswap, which was only about a week old, but is believed to be behind the "jump in average transaction costs on September 1, 2020." On September 2, the average transaction fee on the network was USD $ 15.13.


 

Defi Boom Pushing up ETH Gas Fees, Threatens Viability of Smart Contracts

 


Sushiswap, which is a "branch of Uniswap" already had "$ 1.2 billion in funds locked up" in just five days. In addition, it is already "so popular in China that it has been dubbed 'Uniswap's biggest rival'." It was this competition between the different Defi protocols that led to the "gas war".


While the higher costs may be good news for ether miners, they raise concerns about the sustainability of the network. The bulletin goes on to suggest that "many are saying that high transaction fees mean they are 'rewarded' for activity on the defi platform."


The bulletin states that the higher fees "may even mean that some smart contracts have become nearly unusable, raising questions about Ethereum as a smart contract platform in the first place."


Some organizations have been forced to suspend transactions as they wait for gas costs to return to normal levels. For example, on September 1, Publish0x, a platform that tipped its contributing authors with ETH-based tokens, announced "a delay in payments due to the very high cost of ETH gas."


The publisher explains how costs increase and how this affects the business:


"When we first started Publish0x, the gas price was 6 gwei. It cost $ 10-20 to pay 2,000 people. Currently gas prices hit an all-time high of over 460 gwei, nearly 100x the cost. We are looking for $ 2,000 + in fees for pay the current price of gas. It's definitely not economically viable. "


Just like others who have also been affected, Publish0x says it is open to the possibility of using non-ETH-based tokens to tip in the future.


Meanwhile, the Boxmining newsletter suggested that "the answer to this is Ethereum 2.0, but the mainnet launch is still months away."


In his recent comments on gas cost levels, Vitalik Buterin suggested a second tier solution would overcome the high cost challenge.

 


  What do you think about the impact of the Defi project on the cost of ETH gas? Let us know what you think in the comments section below.


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