The Ethereum network has witnessed a significant surge in transaction fees, reaching nearly a two-year high due to the growing popularity of meme coins. According to a recent market report by IntoTheBlock, the frenzy surrounding Ethereum-based meme tokens like PEPE, SHIB, and FLOKI has fueled blockchain activity, pushing the network’s revenue from fees to $193 million this week. This marks the highest revenue figure since May 2022, showcasing a 78% increase from the previous week.
Surging Popularity and Its Impacts
The speculative wave in meme tokens has increased network activity and significantly impacted Ethereum’s economics. Trading volumes on decentralized exchanges (DEXs) built on Ethereum have seen a 40% jump to $20 billion this week, as reported by DefiLlama. This activity benefits ether (ETH) investors through the network’s token-burning mechanism, which reduces the overall supply of ETH, enhancing its scarcity.
Following Ethereum’s shift to a proof-of-stake model post-merge, a portion of transaction fees is destroyed, leading to a decrease in ETH’s supply. Over the past week, approximately 33,400 ETH tokens were burned, indicating a deflationary trend at a 1.45% annualized rate, according to Ultrasound Money.
The Downside: Rising Transaction Costs
However, the increased demand has also escalated transaction costs on the Ethereum network, with average gas fees reaching up to $28 this week. This hike in fees has rendered the network “unusable” for many users, particularly affecting those involved in smaller transactions.
Layer 2 Solutions and Upcoming Relief
Layer 2 scaling solutions, designed to alleviate the network’s congestion and high fees, have also seen a rise in transaction costs. For example, fees on Arbitrum, a popular layer 2 solution, hit their highest levels since 2022. Nevertheless, there’s potential relief on the horizon with the upcoming Dencun upgrade, which is expected to significantly reduce transaction costs on layer 2 networks to mere cents, offering a much-needed respite to users.
This dramatic rise in network activity and fees underscores the volatile nature of the crypto market, particularly with the meme coin phenomenon driving significant speculation. While beneficial for some investors, it poses challenges to the Ethereum network’s usability, highlighting the continuous need for scalable solutions.
