Ethereum’s high gas fee ‘preventing more retail traders from using DEXs’ — Report

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The expo­nen­tial rise in decen­tral­ized finan­cial activ­i­ty over the past year has inad­ver­tent­ly also result­ed in the increas­ing pop­u­lar­i­ty of decen­tral­ized exchanges, which are aimed at mak­ing finance democ­ra­tized and accessible.

As it turns out, the cumu­la­tive vol­ume on DEX’s recent­ly sur­passed $600 bil­lion, accord­ing to data ana­lyt­ics com­pa­ny Kaiko, which has just released the “industry’s first DEX Data Feed.”

In a recent week­ly research note, the firm not­ed that the sec­tor was being dom­i­nat­ed by Uniswap V3, which accounts for the largest mar­ket share of cumu­la­tive and week­ly vol­ume, as it facil­i­tates $10-$13 bil­lion in vol­ume every week. Although these num­bers might seem high, they are still sig­nif­i­cant­ly low­er when com­pared to cen­tral­ized exchanges like Coin­base and Binance.

One obsta­cle towards main­stream DEX adop­tion is the high trans­ac­tion fee charged by the Ethereum net­work, lead­ing to only ‘whales’ uti­liz­ing these pro­to­cols, accord­ing to Kaiko.

The report not­ed that while cen­tral­ized exchanges process mil­lions of trans­ac­tions each day, major DEXs process few­er than 50,000 deals dur­ing the same time, with Curve and Bal­ancer V1 aver­ag­ing few­er than 1,000 traders per day. It said,

“The large trades are like­ly due to Ethereum’s high trans­ac­tion fees, which pre­vents more retail traders from using DEXs. Every trad­er on a DEX must pay Ethereum trans­ac­tion fees for each trade, which fre­quent­ly sur­pass $100 due to con­ges­tion and scal­a­bil­i­ty issues.”

This obser­va­tion was based on data that showed a dis­crep­an­cy between trade vol­ume and count on DEXs. It explained,

“We can also observe that DEX trade vol­ume has surged over the past few months, but trade count has remained rel­a­tive­ly flat. The only way this is pos­si­ble is if the aver­age trade size has increased… Aver­age trade size for the oth­er DEXs range with­in $10k — $20k per day, which is very large com­pared with cen­tral­ized exchanges which typ­i­cal­ly have aver­age trade sizes between $2k and $4k.”

Sim­i­lar trends have also been observed by the ana­lyt­ics firm Chainal­y­sis, which not­ed in a recent report that DEXs are most­ly used by “whale traders.” How­ev­er, it had also stat­ed the larg­er trans­ac­tion vol­ume processed by DEXs was due to DeFi’s grow­ing pop­u­lar­i­ty in wealth­i­er countries.

Respite can be found in sev­er­al DEXs that are now build­ing on Lay­er 2 pro­to­cols such as Poly­gon and Opti­mism which allow them to bring low­er trans­ac­tion costs and high­er scal­a­bil­i­ty to their platforms.

More­over, alter­nate L1 chains with smart con­tract inte­gra­tion such as Binance Chain, Solana, Polka­dot, and now even Car­dano are being used to build upon by DEXs. Even then, Ethereum con­tin­ues to remain the king of DeFi, with its total val­ue locked sur­pass­ing $179 mil­lion at press time, way above the sec­ond-high­est BNB’s $19 million.

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