As DeFi Deflates, Ethereum Users Get Reprieve From Soaring Fees, Congestion

Oct 7, 2020 at 20:20 UTC.A slowdown in cryptocurrency trading on so-called decentralized exchanges has helped to alleviate congestion on the Ethereum blockchain, at least temporarily mitigating concerns that the network was becoming overloaded.

The trading lull comes as prices tumble for many of the hottest tokens from the fast-growing arena of decentralized finance, or DeFi.

DeFi, a subsector of the cryptocurrency industry where entrepreneurs are developing semi-automated trading and lending platforms atop blockchain networks, had surged in popularity in recent months among investors and traders alike.

The resulting congestion had raised concerns that elevated fees for sending transactions over the blockchain might stymie some users, or push application developers to consider alternative networks.

Total collateral locked into DeFi platforms jumped to a record $11.2 trillion in September, from below $2 billion at the end of June, according to the data website DeFi Pulse.

With less traffic on the second-largest blockchain network, congestion has dropped, helping to reduce fee rates that had jumped as users paid up for priority transaction processing.

The average cost of executing a transaction on Ethereum's blockchain has dropped to just above $2, from a record $14.58 on Sept. 2, according to the data firm Glassnode.

"Transaction fees on Ethereum are slowly returning to normal as the DeFi hype that gripped the market for most of 2020 is subsiding," Nicholas Pelecanos, head of trading at NEM Ventures, an investment arm of the NEM blockchain ecosystem, told CoinDesk in a LinkedIn chat.

According to Digital Asset Data's Abendschein, the relief could prove only temporary for Ethereum users, since fees could quickly shoot back up if a new DeFi protocol emerges or prices rally for ether, the blockchain network's native token.

The second-largest cryptocurrency by market value is currently trading at $340, well off of its two-year high of $480 on Sept. 1.Disclosure.