Ethereum Gas Prices Decrease Significantly, Active ETH Addresses Now Also Less than Active BTC Addresses: Report

Nate Maddrey and the other researchers at Coin Metrics note that Ethereum (ETH) gas prices have dropped down to their lowest levels since March, of last year.

Although a few months back, average gas price consistently reached 150-200 GWEI, the average gas price has now decreased “to the 15-30 GWEI range since the end of May,” the Coin Metrics team confirmed in their latest State of the Network report.

While it may appear like the drop in ETH gas price corresponded with Ethereum’s price crash, gas price actually began trending downward in late April 2021, “well before the crash,” the Coin Metrics team revealed while noting that average gas price “reached as low as 40 GWEI on May 1, 2021.””

The report also mentioned that gas then temporarily “spiked back up to 250-300 GWEI on March 12th and March 19th, two of the worst days of the crash.” But upon careful review, the large price spikes were “caused by extreme circumstances and were relatively short lived,” the researchers at Coin Metrics explained.

They also noted that at about 11:00 UTC on May 19, 2021, the average gas price “suddenly spiked from under 100 GWEI to over 2,000 GWEI in less than two hours” and it then dropped “down to about 300 GWEI a few hours later.”

The report further noted:

“The extreme gas spike occurred during one of the worst flash crashes in ETH’s history, as price dropped from about $3,400 to under $1,900. The sudden crash led to a DeFi liquidation spiral, which caused escalating gas prices as investors desperately tried to avoid liquidation.”

A report from AAVE reveals that May 19th was “the largest single-day liquidation total in the history of AAVE and Compound.” However, outside of the “relatively extreme” circumstances of May 12th and May 19th, gas prices have “mostly been trending downwards,” the Coin Metrics team confirmed.

They also noted that several factors have “combined to contribute to the drop in average gas prices.” First, the Ethereum gas limit was “raised to about 15M on April 22nd” and the gas limit raise “allows more operations to fit into each block, and has helped ease congestion.”

The report further noted that Ethereum scalability solutions have begun to really take off “since late April.” Polygon, a sidechain scalability protocol for Ethereum, has “gained momentum over the last few months, including adoption by AAVE and other DeFi protocols,” the report noted while adding that Arbitrum, which uses optimistic rollups for scalability, launched in late May of this year.

The Coin Metrics team also noted that “more and more transactions are moving over to these scalability solutions, which helps remove more congestion from Ethereum and further ease gas prices.”

The report further revealed:

“Flashbots is helping to move DeFi arbitrage bots off the Ethereum blockchain. With the rise of decentralized exchanges (DEXs) like Uniswap, arbitrage bots have been a major contributor to high gas prices. Since DEX trades are viewable in the mempool and on-chain, bots will monitor incoming trades and then try to front-run them for arbitrage or other profit making opportunities.”

The report also pointed out that the timing of these types of trades are “critical so these bots are typically willing to pay extremely high gas prices to try to outbid each other and get their transaction confirmed first.” However, flashbots has started “to move this bidding process to a parallel chain, off of the Ethereum main chain,” the report noted while adding that this has “helped to reduce gas wars on ETH and bring down the overall gas price.”

The report continued:

“Lower gas prices have contributed to a drop in overall ETH fees over the last two months. But with EIP-1559 set to go live in early August, there’s another potential consequence of lower gas prices: less transaction fees burned after the onset of EIP-1559.”

The report clarified that there is no way to actually know “exactly what percent of fees will be burned compared to what percent will go towards tips once EIP-1559 goes live.”

Although estimated annual inflation rate could have declined to less than 2% while there were high fees in March and early April, it’s now “increased to above 3.5% following the fee drop in May,” the report noted while adding that this would still be “significantly below ETH’s current annual inflation, but it would not be as low as previously estimated.”

But fees will likely continue “to fluctuate over time,” the Coin Metrics team believes and they also noted that “if the amount of total fees eventually goes back up ETH’s annual inflation will decrease thanks to EIP-1559’s fee burn mechanism.”

The report also mentioned that BTC now once again has “more daily active addresses than ETH after ETH briefly topped BTC last week.” BTC usage was “down last week as the average time between blocks spiked, which caused less blocks than normal to get added to the blockchain,” the report added.

The Coin Metrics team also mentioned that the increase in block time was likely because of a decline in hashrate (amount of computing power securing Bitcoin network), which may result in “less blocks getting mined.” BTC hashrate “stabilized over the last week after dropping to its lowest level since 2019 on June 27th,” the report noted.

The report also mentioned:

“Bitcoin difficulty decreased by about 28% on July 3rd, which is the largest downward difficulty adjustment in Bitcoin’s history. Although it has undergone a relatively large drop in hash rate over the past month, Bitcoin was designed to be able to adjust to sudden changes and remain secure.”

The report added:

“The difficulty adjustment comes after the time between Bitcoin blocks briefly topped over 23 minutes last week, its highest level since 2010. Bitcoin’s average block time increased during June, likely because of the ongoing miner migration out of China due to new stricter regulations. Average block time has decreased to about 658 seconds since the difficulty adjustment, much closer to the 10 minute target.”

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