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Ethereum (ETH), the world’s second-largest cryptocurrency by market value and the biggest altcoin, ended May in a rather calm fashion. As of writing, ETH is trading around $1,850, and significant changes are seen in the network’s average transaction fee, which has plummeted by up to 70%.
The Average Transaction Fee on the Network Fell by 69% in One Month
According to on-chain data provider Santiment, Ethereum’s average transaction fee has fallen by 69% in just a month. Interestingly, at the beginning of last May, Ethereum’s average transaction fee hit a yearly high of $14. However, it fell below $5 by the end of the month.
In its assessment of the dramatic change in Ethereum‘s transaction fee, Santiment stated, “Ethereum’s average transaction fee plummeted rapidly after reaching a 2023 high of $14 per transaction at the beginning of May. Greater affordability encourages more utility. Also, the self-custody situation among investors has pushed the ETH supply on cryptocurrency exchanges to an all-time low of 9.9%.”
Ethereum Transaction Fees by Transaction Type
As the Ethereum Blockchain has long hosted various asset classes, each has significantly contributed to the increase in transaction fees at different points over time.
On-chain data platform Glassnode detailed how different asset classes contributed to the increase in transaction fees on the largest altcoin network at different times. Accordingly, ICOs in 2017-2018 contributed 40% to the increase in Ethereum’s average transaction fees, taking the top spot. It was attributed to all ERC-20 token transfers at that time. However, as the demand for ERC-20 tokens decreased over the following years, Decentralized Finance (DeFi) began to emerge in 2020. The DeFi wave reached its peak from June 2020 to 2021, causing a 30% increase in transaction fees.
Underlining the consistent performance decline in DeFi tokens over the past two years, Glassnode stated, “Investments in DeFi were complex, and there has been a quite low token price performance in recent years.”
Starting from mid-2021, NFTs gained significant importance, but demand sharply fell by the end of 2022. Similarly, USD-pegged stablecoins have seen significant user demand since 2020. However, according to Glassnode, the decline in the transaction fee increase resulting from stablecoin transactions reflects a change in usage rather than a drop in demand. Stablecoins are now being used more as a hedge against risk and a store of value rather than a payment method.
