Forget Meme Coins Or Stablecoins, DeFi Leads In Fees Generation On Ethereum

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.

While the Metaverse, gaming, and NFT activities have since dissipated, DeFi stands, looking at the steady recovery in total value locked (TVL), according to DeFiLlama.

DeFi Leads In Ethereum Gas Fees Generation

The dominance of DeFi in Ethereum goes on to show smart contracts and decentralized ledgers have revolutionized finance. To confirm this position, especially looking at trends in gas fees and the primary source over the years, the managing partner of DragonFly, took to X, sharing data from CoinShares.

After launching in Ethereum, CoinShares analysts note that gas fees continue to grow. There was a notable dip after the ICO mania of 2017 and 2018. The annual gas fees generated tanked from $143 million in 2018 to as low as $46 million in 2019.

However, after this contraction, which came after the crypto winter of 2018, gas fees generated exploded. The pickup in momentum coincided with the popularity of ERC-20 tokens, permitting protocols to issue tokens and the rising adoption of DeFi.

The resurgence in DeFi follows the launch of Uniswap, a decentralized exchange (DEX), in late 2018 and the introduction of the automated market maker (AMM) model, which decentralized liquidity provision. DEXs form a big part of DeFi. Some of the most popular DeFi protocols, looking at DeFiLlama, are DEXs like Curve and Uniswap.

From 2018 to 2020, the network derived its fees from ERC-20 transfers. However, as DeFi picked up steam on Ethereum in the last bull cycle from 2021, most gas fees have been from DEXs.

DEX Gas Fees Fall As ERC-20 And Stablecoin Transfers Grow, Blame Dencun?

Interestingly, gas fees from DEXs continue to fall, dropping from $2.4 billion in 2021 to $512 billion as of 2024. Meanwhile, as of September 2024, ERC-20 transfers are in second place, up from third, where it has been from 2021 to 2023. Last year alone, ERC-20 transfers, a decent portion from meme coins like PEPE and stablecoins, generated $223 million for validators.

Additionally, gas fees from layer-2s continue to slump, according to data. In 2023, Ethereum generated $247 million in fees from layer-2 platforms like Arbitrum and Optimism. According to CoinShares, it was at $90 million by the time of their publishing. The sharp drop is primarily due to the activation of Dencun.

Feature image from Canva, chart from TradingView