The Ethereum network has experienced a remarkable surge in revenue this week, reaching levels not seen in almost two years. This surge can be attributed to a speculative frenzy surrounding meme coins, which has led to a significant uptick in activity on the blockchain.
Ethereum network fees experience a massive rise
According to data from IntoTheBlock, Ethereum’s mainnet revenue from network fees soared to $193 million, marking the highest figure since May 2022 and representing a substantial 78% increase from the previous week. This surge in on-chain activity has been primarily fueled by increased speculation with meme tokens, including popular ones like Pepe (PEPE), Shiba Inu (SHIB), and Floki (FLOKI).
These tokens have seen their prices more than double over the past week, attracting a wave of retail investors looking to capitalize on the hype. Additionally, trading volumes on decentralized exchanges (DEX) built on Ethereum have surged by 40% to reach $20 billion this week, according to data from DefiLlama.
Investors holding Ethereum’s native token, ether (ETH), have benefited from this frenzy due to the network’s token-burning mechanism. With Ethereum’s transition to a proof-of-stake blockchain, known as the Merge, a portion of the transaction fees paid by users is burned, effectively reducing the token’s circulating supply.
Implications and challenges for the ecosystem
In just the past week, the supply of ETH has decreased by approximately 33,400 tokens, equivalent to roughly $130 million at current market prices. This deflationary pressure has contributed to a positive outlook for ETH holders, with Ethereum becoming deflationary at a rate of 1.45% annually, according to data from ultrasound.money.
However, the surge in activity on the Ethereum blockchain has also led to increased costs for users. Average transaction fees, known as gas fees, have skyrocketed to as high as $28 this week, rendering the network prohibitively expensive for many users, as noted by IntoTheBlock.
Furthermore, fees on layer 2 solutions, which are designed to improve scalability on the Ethereum network, have also seen a significant increase. Transactions on platforms like Arbitrum have cost as much as $1, marking the highest fees since 2022. To address these challenges, the upcoming Dencun upgrade is expected to provide a much-needed solution.
Scheduled for release next week, the upgrade aims to lower transaction costs on layer 2 solutions to mere cents, offering relief to Ethereum users. Despite the challenges posed by high transaction fees, the price of ether briefly surpassed $4,000 on Friday for the first time since late 2021. However, it later experienced a 4% decline alongside bitcoin (BTC). As of now, ETH is trading at around $3,900, marking a 15% increase for the week, in line with the broader market’s performance as reflected by the CoinDesk 20 Index (CD20).
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