The DeFi mania caused Ethereum's transaction fees to rise by 30.3% a week, eventually becoming a sweet annoyance

Original title: "DeFi Mania Causes Ethereum transaction Fees to rise 30.3% a week, Sweet Annoyance after all"

Original post by Kyle

Key points:

- DeFi caused Ethereum trading fees to rise, according to the latest report from Coin Metrics.

- Ethereum transaction fees have risen 30.3% in the past week due to increased demand.

The encrypted data company said the increase in transaction fees could make the network "prohibitively expensive to use."

A "State of the Network" report released today by encrypted data company Coin Metrics found that Ethereum transaction fees continue to be inflated due to a sudden surge in demand for decentralized Finance (DeFi) products. But in some ways, Coin Metrics says that may not be a good thing.

Ethereum transaction fees are fees charged by the Ethereum network for each transaction executed. The average ethereum fee is now close to $0.40, the highest since mid-2018, according to Coin Metrics.

Miner's chance? The company wrote in its report that high transaction fees "generally mean high demand for block space and generate additional revenue for miners who ensure cybersecurity."

Coin Metrics attributed the increase in demand for blockspace to the booming DeFi market. DeFi refers to unmanaged financial services, such as loan agreements or decentralized stabilizers. Most of the top-level DeFi protocols are based on Ethereum. DeFi is now a $3 billion plus industry. And it's growing very rapidly; Just two weeks ago, the total locked value of the DeFi protocol was only $2 billion.

For example, Coin Metrics indicates how many ETH are being transferred every day -- more than 1 million ETH ($243,700,000) per day during most of July, which is far from normal.

In addition, Ethereum's transaction fees rose 30.3 percent over the past week, indicating increased demand, even after a Cloudflare outage on July 17 caused some popular cryptocurrency wallets to crash, according to Coin Metrics.

Bitcoin trading volumes fell 5 per cent, while Ethereum volumes rose 5.5 per cent. This is all due to "the continued rapid growth of decentralized finance (DeFi) applications."

But make no mistake: high transaction costs are not all good news. Coin Metrics says they make the network "very expensive to use."

Ethereum co-founder Vitalik Buterin tweeted today that the high cost also makes the network less secure. Buterin cites a Princeton paper explaining how high transaction costs create "rich" blocks that are "attractive" targets for robbery by selfish miners.

Coin Metrics said dapps, such as games and collectibles, were hit hardest by the high fees because they "rely on a large number of low-cost transactions."

Ethereum's high transaction fees mean the network cannot handle a lot of activity, limiting its scope.

For the past few months, Ethereum's network utilization has hovered around 95%. At 100 percent, the network would grind to a halt and become incredibly expensive to use -- a devastating blow for dAPP, which relies on micropayments.

And DeFi isn't the only thing that can raise transaction costs. Massive Ponzi schemes, for example, can push the web to its limits.

Forsage, a Ponzi scheme on Ethereum, now accounts for 6.44 per cent of transactions in ethereum out of the past 1,500 blocks. The Philippine Securities and Exchange Commission warned investors not to use it.

A few weeks ago, Forsage accounted for about 20 per cent of transactions. In contrast, the liquidity protocol Uniswap V2, one of Ethereum's most popular DeFi Dapp, accounts for just 5.06 per cent of transactions.

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