Falling Ethereum Gas Prices Can Be Attributed To NFTs: Report

Time Stamp: February 18, 2022 9:27 AM
Source Node: 1178559

The Falling Ethereum gas prices could be due to the rise of popularity in NFTs but let’s find out more broadly why is that the case in the upcoming Ethereum news today.

Ethereum gas fees recorded huge prices just to approve a transaction on the network but now we are seeing a sub-$10 move or somewhere close to it. Gas is actually the cost of doing business on Ethereum and they are transaction fees that the user has to pay so when there’s a lot of activity happening, it can cost more to get a transaction validated by miners on the network. The gas fees are high but now we can see falling Ethereum gas prices.

tvl in eth
TVL in ETH terms from November 17, 2021, to February 14, 2022. Source L2Beat.

The first trend that contributes to the dropping gas prices is the rise of layer 2 activity. With so much money moving off of Ethereum’s mainnet and on other networks such as Arbitrum, this is lowering the fees. However, if you look at the total value of Ethereum locked up in layer 2 solutions, the activity is quite stagnant. The charts show that the value of ETH on layer 2 networks peaked at the end of January and then leveled off. But when we can compare the values to the median cost of gas over the same timeframe, there is not really a clear relationship between them.

eth volumes
Ethereum volumes on OpenSea in millions. Source Dune Analytics.

After layer 2 solutions, the lower gas costs on Ethereum can be attributed to the users moving to cheaper chains such as Avalanche, Solana, and Terra and like the layer 2 theory, there could be some truth in this. This is because at the start of 2021, Ethereum was the only DEFI game in town and dominated more than 97% of the market share but one year later, the figure dropped to 62.35%. Today, Ethereum accounts for 58% of the entire $123 billion DeFi market as per DeFi lama and this is quite the dip from 97% to 58% in a year. But if we compare back to January 2021, the gas prices are roughly the same.

eth market
Ethereum market share from August 3, 2020, to February 13, 2022. Source DeFi Llama.

The average gas price was 63 Gwei on the same day this year with the price being 154 gwei despite the activity popping up on the other chains. Also, the crypto market shaved off about $1 trillion in market cap since November highs and we can make an assumption that this led to a lower activity overall.

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