Crypto: Ethereum Fees Are Soaring… But User Activity Is Plummeting!

As the crypto market continues to fascinate with its dynamism and unpredictability, Ethereum, the pillar of decentralized finance, finds itself at the heart of a new enigma. For several weeks, a strange dissonance has been taking hold within the network: transaction fees are exploding, with levels rarely seen since the transition to proof of stake, while the number of active accounts is falling to an all-time low for the year.

Transaction fees explode despite drop in activity

In early September 2024, Ethereum saw its average transaction fees fall below the symbolic $1 mark, the first time since July 2020. However, within a few weeks, these fees skyrocketed. Indeed, on September 21, 2024, the seven-day moving average of fees reached $3.52, more than triple the $0.85 recorded at the beginning of the month. Such an increase coincides with a strengthening of Ethereum's “burn”, which has also explodedand went from 80.27 ETH to more than 1,360 ETH in just three weeks, a jump of 1600%. This situation is all the more surprising since activity on the network seems, on the contrary, to be slowing down.

The sudden spike is largely attributable to increased gas usage by some of the network’s most active smart contracts. These include Uniswap, both its original and V2 variants, as well as Telegram-focused trading bots like Maestro and Banana Gun. Ether transfers and crypto transactions tied to the stablecoins Tether (USDT) and USD Coin (USDC) are also major contributors to the spike in fees. Despite the increased costs, network usage, as measured by the number of active accounts, continues to decline.

A marked drop in active accounts: a warning signal?

As fees climb, Ethereum is seeing a significant drop in active accounts. As of September 21, 2024, data shows that active accounts are down 11% from the beginning of the month, with around 385,000 users, the lowest level since December 2023. This could reflect a loss of interest in Ethereum as fees rise while overall network activity declines.

The decline in active accounts could also be explained by a drop in revenue for Ethereum stakers. Indeed, they have been recording declining daily gains for several months. With increased competition from other blockchains and cheaper alternatives, Ethereum is forced to adopt new strategies to slow this decline and regain user engagement. The outlook remains uncertain in the short term, especially since the general sentiment in the crypto market does not seem to favor Ethereum.

The rise in transaction fees on Ethereum (combined with the decline in the number of active accounts) represents a pivotal moment for the blockchain. While this situation could increase the profitability of some network players, it also risks slowing adoption by new users and encouraging migration to competing solutions.