Coin Metrics' State of the Network: Issue 95

Tuesday, March 23rd, 2021

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Weekly Research Focus

The Ethereum Gas Report

By Nate Maddrey and the Coin Metrics Team

Ethereum adoption is growing like never before. Decentralized finance (DeFi) continues its rapid rise, stablecoins are being adopted around the world, and NFTs are becoming an everyday topic of conversation. 

Ethereum’s usage is a great sign for the long-term prospects of the network. But in the short-term it’s caused some growing pains. Ethereum transaction fees have shot up to new highs in early 2021.

In a new report, we first take a look at Ethereum’s current fee mechanism and what’s driving the high fees. We’ll then look at EIP-1559, and how it will change Ethereum fees moving forward.

Below are a few highlights from the report. Check out the full report here: The Ethereum Gas Report.

Record Fees

At the peak of the 2017/2018 bull run, average Ethereum transaction fee reached $5.70. Ethereum average transaction fee has been more than $5.70 every day since January 18th, 2021. The median transaction fee has been above $10 for most of the year. 

Source: Coin Metrics Network Data Charts

Part of the growth in transaction fees has been due to the sharp increase in ETH price. As ETH gets more valuable, transaction fees get more and more expensive when measured in USD. But it's also due to a large increase in gas prices caused by network congestion. 

Rising Prices

Gas price tends to fluctuate and is dependent on demand for block space. Average gas price surged to its highest levels ever over the summer of 2020 due to the rise (and fall) of DeFi. The growth of decentralized trading, on-chain arbitrage, yield farming, and new token launches all contributed a sharp rise in competition for transaction priority, which led to escalating gas prices. 

Average prices peaked at over 500 GWEI on September 17th, 2020 following Uniswap’s unexpected UNI token airdrop. Gas prices have soared again in 2021 as DeFi continues to surge, and a sharp increase in ETH price has brought in new traders and speculators.

Source: Coin Metrics Network Data Charts

Full Blocks

Ethereum gas fees are ultimately paid to Ethereum miners, who earn their revenue through a combination of transaction fees and block rewards (i.e. newly issued ETH). With ETH fees surging, transaction fees now make up 50% of Ethereum miner revenue.

When mining a new block miners need to specify which transactions to include. Each block can only include a limited number of transactions due to the maximum block size. So miners naturally prioritize the transactions with the highest gas prices since they will earn them more money if these transactions are included.

Sending a transaction with a relatively high gas price will make it more likely that miners include it in the next block since they’re incentivized to include the transactions with the highest gas price. But there is no guarantee that it will be included. If there are a certain number of users willing to pay even higher gas prices, the transaction won’t get confirmed until a later block. 

This becomes even more problematic when blocks are consistently full. Full blocks escalate the intensity of the gas price auction as transaction senders are bidding for scarce space. Since the rise of DeFi in summer 2020, blocks have consistently been about 95% full or more. In March 2021, blocks have been 97%-98% full on average.

Source: Coin Metrics Network Data Charts

The UNI Airdrop Gas Surge

There are many benefits to on-chain trading used by Uniswap and other DEXs. But one drawback is that it puts upward pressure on gas prices. There are often immediate financial benefits to executing a trade faster than others, so many DEX users are willing to pay high gas prices.

The following chart shows gas prices per block before and after Uniswap’s UNI airdrop. Each dot represents the average gas price of an individual block, denominated in GWEI. Each dot’s color denotes the median transaction fee per block, denominated in USD. As gas prices skyrocketed the median transaction fee temporarily reached $12 and above. 

When the UNI token was launched, traders rushed to Uniswap to begin trading it. This led to a large, sudden increase in gas prices as traders competed for block space. This can be seen shortly after midnight UTC (00:00) on the below chart, where gas prices suddenly go vertical and remain elevated for the next 24 hours. 

If you had sent a transaction right before midnight with a 200 GWEI gas price, you would expect it to be included in a block relatively soon based on the average gas prices of the last 12 hours. But due to the sudden escalation in gas prices, your 200 GWEI transaction may not actually get included in a block for a day or more, until demand waned and the gas prices finally came back down. 

Source: Coin Metrics Network Data Pro

Full Report

Read the full report here: The Ethereum Gas Report.

And to explore the data used in this piece and our other on-chain metrics check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC and ETH continued to move sideways over the last week. Most on-chain metrics also flattened out, with modest gains or decreases in usage and economics. Notably, on-chain transfer value dropped by 12.4% and 12.0%, respectively, as overall activity dropped. But active addresses and transfers were close to even. 

Tether had a strong week amidst the relative calm. Tether’s total supply grew 5.7% week-over-week, passing 40B. Tether active addresses also grew close to 30% on the week.  

Network Highlights

The percentage of total BTC supply active within the last year has started to dip following March 12th, 2021. Although it's only dropped by a few percentage points it could signal a slight trend reversal considering how much the metric has grown so far throughout 2021. 

A year after the March 2020 crash, the decline could signal that investors who bought BTC after the crash are relatively long-term holders, as many have apparently held for over a year.    

Source: Coin Metrics Network Data Charts

Wrapped BTC (WBTC) supply has hit a new all-time high of 137.3K. Used heavily in DeFi, growing WBTC supply likely means that money is flowing from BTC into the DeFi ecosystem. 

Despite WBTC’s rise, RenBTC supply (another variant of wrapped BTC) has been declining in March 2021 and is currently 12.89K. 

Source: Coin Metrics Network Data Charts

The overall pace of Ethereum contract creation has slowed down in 2021. After peaking at over 100K new contracts a day at the end of 2020, there has been an average of 15K-25K new contracts per day in March 2021.  

Source: Coin Metrics Network Data Charts

The number of ERC-721 contracts has hit a new peak amidst NFT mania. But there are still about 19K ERC-721 contracts in total, a small fraction of the 17.84M smart contracts launched on Ethereum. 

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our new market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

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