Ethereum fees decline by 70% from 2023 highs as top DeFi protocols lose users

Ethereum is currently facing trouble in the spot market due to the broader market bearishness as well as investors' skepticism. But while the spot market only recently took a turn for the worse, the Decentralized Finance (DeFi) space has been only negative for a long time.

Ethereum loses fees and users

Ethereum transaction fees have been a matter of discussion and concern for a long time now, but over the last few days, the transaction fees have reduced considerably. The average fee rises when there are lots of transactions occurring on the blockchain, creating backlogs, essentially enacting an increase in demand.

But given the condition of the broader market, which is still bearish, along with concerns of the debt ceiling at a high during the past few days, investors seem to have been pulling back from investing. Consequently, the transaction fee has declined by nearly 70% from the highest point in 2023 of $14 to $4.28 at present.

Ethereum average transaction fee

Interestingly, while the spot market is observing lower participation only now, the DeFi market has been doing so for a long time now.

On-chain data shows the DAU/MAU (Daily Active User/Monthly Active User) ratio for some of the top DeFi protocols, such as Uniswap, PancakeSwap, SushiSwap and Trader Joe has been at a low. The ratio is generally used to gauge user engagement and is expressed as a percentage where 50% or more is noted as exceptional.

However, the aforementioned ratio must have a value of more than at least 20% in order to be considered good, but anything below it is highly bearish and concerning. In the case of the four protocols noted above, there have been a few spikes every now and then.

 But for the most part of the last two years, the DAU/MAU ratio has been below 20%, with the recent few months bearing the most weight.

Thus the low average transaction fee is the result of the receding user base and the barely improving network conditions, as well as declining demand due to a lack of profits in the market. 

This is concerning for the network since, despite being the biggest DeFi chain in the world, Ethereum is not observing a lot of capital moving into its protocols in comparison to the likes of Avalanche, Tron and more. To add to that, the Total Value Locked (TVL) on the chain is on a decline too.

In the last month and a half, the TVL has come down by more than $8 billion, from $56 billion to $48 billion and is still declining. 

Ethereum total value locked

All of this can be turned around, provided the investors' participation is improved along with the condition of the market, which would necessitate a bullish outlook in the crypto space over the next few weeks.