Data Interpretation: Why Ethereum Gas Fees Have Dropped to a Six-Month Low

This article is from Odaily Planet Daily, originally authored by Yogita Khatri, and compiled by Moni.

In the past month, gas fees on the Ethereum blockchain have decreased by nearly 90%, significantly lowering transaction costs. But what are the specific reasons behind the drop in gas fees? Let's explore through data charts.

According to data from The Block Data Dashboard, the average transaction fee on Ethereum is now about $4.5, down from nearly $45 a month ago—this means that current transaction costs have dropped by 90%, with average transaction fees at a six-month low. It is worth noting that the average transaction fee data is derived from the 7-day moving average (7MDA), which means it represents a short-term trend.

So, why did gas fees plummet from historical highs to lows in just a month? In fact, there are several key factors contributing to this:

First, Ethereum's transaction volume has significantly decreased in recent weeks. With the recent overall crash in the cryptocurrency market, trading volumes for decentralized finance (DeFi) and non-fungible tokens (NFTs) have both declined.

Data doesn't lie: currently, the average daily transaction volume on Ethereum has dropped from 1.65 million a month ago to about 1.2 million. According to The Block Data Dashboard, NFT trading volumes and transaction amounts have also seen a certain degree of decline.

Secondly, another factor behind the decline in gas fees is the increasing usage of Layer 2 scaling solution Polygon (formerly Matic Network). Especially in recent weeks, the transaction volume on the Polygon network has significantly increased.

According to data from network tracker PolygonScan, the average daily transaction volume on Polygon has grown from about 1.5 million in the past to nearly 7.5 million now—this is more than five times the average daily transaction volume on Ethereum.

Polygon is a proof-of-stake (PoS) blockchain, while Ethereum is still a proof-of-work (PoW) blockchain, and the transition to a proof-of-stake consensus model has not yet been completed. To be frank, while both models have their advantages and disadvantages, the transaction processing capacity of the proof-of-work consensus model is indeed limited, which typically leads to higher network transaction costs.

However, one thing is certain: due to the increasing market demand for Ethereum scaling solutions, Polygon has become the preferred solution for users at this stage. As reported by The Block Research recently, there are currently over 350 DeFi projects within the Polygon ecosystem.

Finally, the increase in the use of Flashbot transactions is another factor contributing to the reduction in gas fees. Flashbots allow traders to communicate off-chain with Ethereum miners, such as executing transactions in private channels, which significantly reduces the number of invalid transactions on the Ethereum blockchain, further lowering gas fees. In other words, the number of bots trying to raise gas prices for transaction priority is currently decreasing.

In addition, the total value locked in Polygon has recently hit new all-time highs, surpassing $7 billion on June 13, $8 billion on June 15, and reaching $8.51 billion (with a net locked value of $7.4 billion) as of June 16 when this article was written. The three protocols with the highest locked value on its network are: Aave ($3.7 billion), SushiSwap ($1.6 billion), and QuickSwap ($1.5 billion).

There is also good news: as more Ethereum scaling solutions (such as Optimistic Rollups) are set to launch in the near future, Ethereum gas fees are expected to remain at low levels.