What does the current rise in Ethereum fees mean?

Author: @brianq; Compiler: Baishui, Golden Finance

While Ethereum fees have most likely been off your radar for the time being, they have been quietly rising over the past few weeks. The recent modest rise has barely attracted the attention of traders, as historically, people prefer to ignore additional costs when their portfolios are moving in the right direction (ETH is up 15.6% since September 15). Ethereum's overall sentiment remains relatively unaffected, as many traders are still trying to recover after buying into the highs of $3.7K to $3.9K in May.

But Ethereum fees have been rising in recent weeks, returning to levels not seen in the ecosystem since late May. Understandably, network activity has increased amid this encouraging price rebound, but discussion around these fee increases remains relatively muted. According to Santiment’s social volume data, there has not been a significant surge in discussions about Ethereum fees, suggesting that traders are not overly sensitive to these changes. This may be because the average fee of $3.23 is still relatively low compared to much higher fees earlier this year, especially in March, when fees reached over $15 during the market high.

One of the main contributors to these fees is Wrapped Ethereum (WETH), which continues to dominate Ethereum's fee charts. WETH plays a key role in Ethereum's decentralized finance (DeFi) ecosystem as it is a "wrapped" version of Ethereum that makes it easier to interact with decentralized applications. WETH's dominance in fee contributions indicates that traders are using DeFi platforms heavily, potentially participating in liquidity pools, trading, and other financial activities that require WETH as an underlying asset. This suggests that the current increase in fees may be driven by an increase in DeFi activity, which is generally a positive sign for the health of the ecosystem.

Interestingly, after WETH, the next four contract addresses contributing to Ethereum network fees are Hana (HANA), Virtual USD (VUSD), Incept (INCEPT), and Doggo (DOGGO). Each of these tokens tells a unique story about the activity happening on the Ethereum blockchain:

1) Hana (HANA): The token is gaining popularity in decentralized finance, which could indicate its growing role in staking or lending platforms. Its increasing network usage could be a sign of deeper integration in Ethereum DeFi protocols.

2) Virtual Dollar (VUSD): As a stablecoin, VUSD's fee contribution may reflect users seeking a safe haven in stable assets during market volatility. Stablecoins such as VUSD are popular for trading, liquidity provision, and risk mitigation, all of which incur fees on the network.

3) Incept (INCEPT): INCEPT is an emerging token that seems to be gaining momentum. Although it is still relatively new, the increase in fee contributions may indicate its participation in niche projects such as games or NFTs, which are becoming increasingly popular on Ethereum.

4) Doggo (DOGGO): Similar to other currencies such as Dogecoin, this memecoin has seen a surge in speculative trading. The increasing network activity around DOGGO suggests that traders are betting on its short-term potential, which could increase the overall fee structure of the Ethereum network.

Despite the rise in fees on the Ethereum protocol, these levels remain modest by historical standards. The $3.23 average fee is well below the shocking highs we saw earlier this year, meaning traders are not hesitating to continue using the network. This low-key sensitivity in social discussions further supports the view that unless fees rise significantly, they are unlikely to become a significant barrier to Ethereum’s usability in the short term.

It’s worth noting that rising fees can sometimes signal that the market is approaching a speculative peak, as higher fees tend to coincide with a surge in network activity driven by market hype. However, the current small increase in fees is unlikely to be a cause for concern. Instead, it reflects healthy, growing activity in the Ethereum ecosystem, particularly in DeFi and speculative trading around smaller tokens. As long as fees remain manageable, Ethereum is likely to continue to thrive without much disruption.