DeFi Leads Ethereum Gas Fees Generation

Ethereum remains by far the largest smart contracts platform by market cap. Perched at second in the market cap leaderboard, the network hosts dapps cutting across multiple sectors.

Ethereum, the leading smart contracts platform by market capitalization, hosts a wide range of decentralized applications (dapps) spanning multiple sectors. While activities related to the Metaverse, gaming, and NFTs have declined, decentralized finance (DeFi) remains strong, as evidenced by the steady recovery in total value locked (TVL), according to data from DeFiLlama.

DeFi applications have played a significant role in driving gas fees on Ethereum. To further illustrate this dominance, DragonFly's managing partner shared data from CoinShares on a Zoom call, highlighting the primary sources of gas fees over the years.

Following Ethereum's launch, gas fees have continued to increase, with a notable dip after the initial coin offering (ICO) mania of 2017 and 2018. During this period, the annual gas fees generated by the network tanked from $143 million in 2018 to as low as $46 million in 2019.

However, after this contraction, which came in the aftermath of the crypto winter of 2018, gas fees generated by the network exploded. This uptick in momentum coincided with the rising popularity of ERC-20 tokens, which allowed protocols to easily issue tokens and the increasing adoption of DeFi.

The resurgence in DeFi activity can be traced back to the late 2018 launch of Uniswap, a decentralized exchange (DEX), and the introduction of the automated market maker (AMM) model, which decentralized liquidity provision. DEXs constitute a major component of DeFi, with some of the most popular DeFi protocols being DEXs like Curve and Uniswap, according to DeFiLlama.

From 2018 to 2020, the network predominantly derived its fees from ERC-20 transfers. As DeFi gained steam on Ethereum during the last bull cycle from 2021, the majority of gas fees shifted to DEXs.

DEX Gas Fees Decline As ERC-20 And Stablecoin Transfers Increase, Blame Dencun?

Interestingly, gas fees from DEXs have continued to decrease, dropping from $2.4 billion in 2021 to $512 billion as of 2024. Meanwhile, ERC-20 transfers now rank second, having been in third place from 2021 to 2023. Last year alone, ERC-20 transfers, a substantial portion of which came from meme coins like PEPE and stablecoins, generated $223 million for validators.

Furthermore, gas fees from layer-2s have also continued to decline, according to the data. In 2023, Ethereum generated $247 million in fees from layer-2 platforms like Arbitrum and Optimism, which had dropped to $90 million by the time CoinShares published their report. This sharp decrease can be largely attributed to the activation of Dencun.

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