Will Gas Fees Remain Low During a Bull Market?

2:04 am
November 7, 2023
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Summary: The adoption of Ethereum layer-2 solutions is increasing, according to data from Token Terminal. The average number of active Ethereum addresses has doubled in the past three months. While Ethereum’s mainnet remains the most popular, other layer-2s like Polygon, Arbitrum, and OP Mainnet are also seeing adoption. As more users shift to layer-2 solutions, gas fees on the Ethereum mainnet are expected to remain low.

Ethereum Layer-2s Gaining Traction

Data from Token Terminal shows that Ethereum layer-2 solutions are witnessing more adoption. Polygon, an Ethereum sidechain, is currently the most popular. However, Arbitrum and OP Mainnet, which utilize roll-up technology, are also gaining traction. OP Mainnet’s share is gradually declining, while layer-2s like Base and StarkNet are increasing their market share.

In the cryptocurrency market, the number of active addresses is often used to gauge sentiment and adoption. During bear markets, the number of active addresses tends to decrease, while during bull markets, there is an increase, indicating growing interest and potential opportunities.

The recent surge in active addresses corresponds with the rise in crypto prices. Ethereum (ETH) is approaching the $1,870 resistance level, with a breakout potentially leading to higher prices and new highs in 2023. Typically, rising crypto prices drive demand, resulting in increased active addresses and total value locked (TVL) in decentralized finance (DeFi) platforms.

What Can We Expect for Gas Fees?

Ethereum is the leading smart contract platform in terms of activity, primarily due to its first-mover advantage. While developers can deploy protocols directly on the Ethereum mainnet or layer-2 solutions, the mainnet remains the most secure option. Layer-2 solutions, on the other hand, rely on the mainnet for security but process transactions off-chain, enabling cheaper and more efficient transactions.

Although the Ethereum mainnet is secure, its transaction throughput is limited, resulting in higher gas fees during peak demand. However, currently, Ethereum gas fees are at a multi-year low, around 23 Gwei, compared to 240 Gwei in February 2021 when the crypto market experienced significant growth.

As more users shift to layer-2 solutions, it is expected that gas fees on the Ethereum mainnet will remain low, as the mainnet is relieved of high transaction volumes.

FAQ

What are Ethereum layer-2s?

Ethereum layer-2s are solutions built on top of the Ethereum blockchain that aim to improve scalability and reduce congestion. They enable faster and cheaper transactions by processing them off-chain while still relying on the security of the Ethereum mainnet.

Why are gas fees high on the Ethereum mainnet?

Gas fees on the Ethereum mainnet can be high during peak demand because of the limited transaction throughput. The mainnet’s capacity is around 15 transactions per second, which creates congestion and drives up gas fees.

How do layer-2 solutions help reduce gas fees?

Layer-2 solutions process transactions off-chain, relieving the Ethereum mainnet of high transaction volumes. This reduces congestion and allows for cheaper and more efficient transactions, resulting in lower gas fees for users.


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