An article on Crypto.IQ from a couple of weeks ago discussed how Ethereum (ETH) transaction fees had skyrocketed to an average of $7 amid the Decentralized Finance (DeFi) frenzy, and how that was already a massive departure from the long term average of $0.50.
Now the DeFi frenzy has gotten even more manic, largely thanks to SushiSwap which exploded to $1-1.5 billion of total value locked in a few days, driving DeFi total value locked to $9.5 billion.
Since most of this DeFi activity is occurring on the Ethereum blockchain, the Ethereum network is becoming overwhelmed, and transaction fees are far beyond what they ever were before in history.
Indeed, back during the 2017 initial coin offering (ICO) boom transaction fees hit $4 on the Ethereum network, and in the middle of 2018 they spiked to over $5. Now Ethereum transaction fees have exceeded $10 for the first time, and have quickly risen even higher to over $15.
This means that for any typical Ethereum transaction it could cost $10-$20, which is prohibitively expensive. Further, more complex Ethereum transactions, like launching smart contracts for a new token or DeFi project, could easily cost over $100.
These transaction fees have become so high that they are now undoubtedly hindering activity on the Ethereum network, since it is now an expensive decision to make a smart contract or a token, or even to send a simple transaction.
Ultimately, this critical scalability issue could cool down the DeFi frenzy, and also help precipitate an Ethereum price drop. Basically, Ethereum is losing its functionality as a currency due to these transaction fees, and the Ethereum network is no longer an ideal place to experiment with smart contracts due to the fees, and therefore people will seek out other cryptos and other networks.
Zooming out, the current transaction fee spike makes it clear that Ethereum 2.0 is desperately needed, which promises massively increased scalability. That being said, there is not yet any official date for when Ethereum 2.0 will be launched, and the estimated launch date for Ethereum 2.0 keeps getting pushed back.