Whales profit as high Ethereum gas fees sideline retail DeFi investors

Since early 2020, the decentralized financial sector has received a lot of attention due to its innovative innovations and the lucrative high-yield opportunities that are offered to cryptocurrency holders.

Despite these characteristics, this week’s record gas charges indicate that the sector is still suffering from mounting pain and the lack of an appropriate Layer 2 solution could turn smaller investors away from DeFi.

Investors trying to place a trade on Uniswap or simply approving a new token on their preferred DeFi platform will have noticed that these promotions have put a strain on their ETH wallet.

Average Ethereum gas price. Source: Etherscan

Etherscan data shows that gas prices are no longer as high as they were in 2020, but have been noticeably higher since December last year. This rise in gas charges also coincides with the rise in the price of ether.

Analysis of different time zones shows that the cost of transactions during the Asian trading session is comparable to that during the US trading session. This shows that fees are a factor in network usage and underscores the 24-hour nature of the cryptocurrency market.

Average Ethereum Fees per Day in 2020. Source: Flipside Crypto

However, there is one group that has benefited from the sharp rise in network charges. Fees incurred through the advancement of DeFi: Whale token holders.

A closer look at wallets with at least 20 ETH in 2020 reveals a higher number of Ethereum transactions than transactions with smaller wallets, which also correlated with an increase in fees.

Number of transfers by wallet size in 2020. Source: Flipside Crypto

Since gas charges are not calculated based on transaction size, but rather based on the cost of interacting with smart contracts, large wallet holders are more likely to come into contact with the log during higher congestion times as a larger wallet balance is less affected by the increase transaction costs are affected.

Hypothetically, a $ 200 trade and a $ 20,000 trade on Uniswap could each cost around $ 50 in fees under current conditions, making it less likely to use smaller purses as the trading cost is 25% of the total traded value compared to 0.25%.

In order for DeFi to continue its explosive growth, the gas issues related to the Ethereum network issue must be addressed before mass adoption can be achieved.