There have been many catalyst contributing to the ongoing uptrend of crypto and legacy markets. After succumbing bank failures, regulatory uncertainty, and memecoin trading, market participants are still finding all the reasons to stay. There is however, a downside for having too many participants. Since there are many resources needed for conducting transactions and deploying contracts on the Ethereum network, a small fee known as gas is paid to validators for verifying those actions. On Ethereum, every transaction requires a fee regardless of whether the transaction is successful or not. (1).

One thing we can all agree on, Since August, 2021, spending on fees has never felt better. Ethereum began burning ETH in August when it implemented EIP-1559 which burns a portion of fees generated through transactions instead of going to miners, thus decreasing the supply. There are other places to watch the burn, but for now we captured yearly and daily ETH burned along with total transactions. We’ll cover more below! In the meantime, Watch the Burn:

Methodology

The Ethereum network has become almost unusable for those without the proper capital. Many of this stemming from memecoin season as memecoin weekly trading volume reached $2B on May 5th (2). As NFT season reaches near lows, traders are flocking over to Uniswap trying to find the next $PEPE. In this analysis we will cover the effect of high gas fees and how it affects users and protocols on all chains. Our objective is to observe user behavior across all events over the past year to see if they are leaving the chain or biting the bullet on costs.

We are going to use Dune Analytics DuneSQL to run the queries and display the charts on a dashboard. You can find the tables used in the sources below. Key topics this report will cover:

• Ethereum Gas Usage

• Network Activity

• Effect on L2s

Ethereum Gas Usage ⛽️

At this this current rate of 4,000 ETH Burned and current price of $1821 per ETH, we can conclude that the Ethereum network is burning roughly $8 Million daily, and annualized at over $2B in ETH burned. As long as users continue to swap, bridge, or buy anything on the mainnet, gas fees will remain high.

Network Activity 🐝

Uniswap capitalizes on it’s dominance after the launch of the UniversalRouter and Permit2 contracts. The UniversalRouter unified ERC20 and NFT swapping into a single swap router. Integrated with Permit2, users can swap multiple tokens and NFTs in one swap while saving on gas fees. (3).

Looking at the pie charts below, we can notice that the UniversalRouter contract had consumed the most gas, whereas the Flashbots contract used the most gas per transaction. The two charts make it easy to see the comparison between top gas consuming contracts and contracts that consume the most gas per transaction. Such as the case for Flashbots and MEV contracts, which can reduce the competition for inclusion in blocks and potentially lead to lower gas fees for those transactions.

A couple assumptions we can make are:

1. Uniswap is the lead contributor for the recent gas spike

2. Uniswap traders are not that affected by the high gas

Furthermore, let’s get a closer look on how much gas fees are affecting the Ethereum ecosystem and other L2s. As mentioned above, gas fees are at yearly highs resulting in users having to spend more than average to use the network. Below we will observe NFT, DEX and Bridge activity in comparison to the median gas rate. Between NFT and DEX activity it is quite clear that high gas fees have nearly wiped out 90% of NFT transactions, as DEX transactions are at yearly highs.

Effect on L2s

Though bridge volume across major L2s have dropped substantially, Starknet has increased its bridge share by nearly 50% and now owns a majority of the bridge volume market share. Are users trying to sybil the potential airdrop or are they looking for a cheap escape from Ethereum? We only know as much as our data gives us. Our observation also shows that bridge activity reached a yearly high in March 2023, lead by the Arbitrum airdrop and Incentivized LPs on the Arbitrum network. Since then all Polygon, Optimism, and Arbitrum bridges have seen yearly low bridge volume and transactions. In the end, it's quite clear that high gas fees have affected bridge volume.

Conclusion

There are plenty of key takeaways that support our research. Our objective was to analyze the Ethereum network gas usage across projects and chains to see how users were effected by the high gas fees. Other findings show that NFT trading dropped by over 90% as Blur and Opensea’s share of gas usage dropped below 2% from a March high of 28%.

The impact of gas on NFTs can really be seen in the NFT Gas Comparison chart, where gas is 50 gwei and the total trades are around 17,000 from the March high of 120,000. In fact, the DEX Gas Comparison chart shows a clear contrast of the NFT chart, as DEX transactions are reaching yearly highs. Users are feeling the heat and many are taking the loss.

Based on the data we have provided, our best prediction suggests that gas fees are correlated to high Uniswap transactions and will not slow down until the trading volume and transactions decrease. We can only assume that once gas drops, Uniswap trades will be below range levels. With that being said use MEV protection for your swaps until gas cools down! NFA!

Thanks for viewing. ✌️

Sources:

Tables Used:

• ethereum.transactions

• ethereum.blocks

• labels.all

• dex.trades

• nft.trades

Links Used:

Image: Canva