On-chain data shows that Ethereum’s average transaction fees have seen a sharp drop after hitting 11-month highs last week.
Ethereum transfer fees have decreased by around 35% in the past week
According to data from the on-chain analysis firm Holythe rates reached very high values when the price of the asset fell below the level of $2,000 about a week ago.
The indicator of interest here is “average fees”, which, as the name already suggests, measures the average amount of fees (in USD) that investors are attaching to their trades at the moment. The value of this metric is mainly affected by the traffic density that the Ethereum network is currently receiving.
When a large number of transactions are taking place at once, the mempool (the place where transfers wait to be added to the block) can become congested. During those times, many transfers can get stuck on hold, as network validators naturally prioritize transactions that carry high fees.
Investors who want to make their transfers faster start charging them a higher amount of fees. Other holders may also try to compete with these high fee transactions by attaching even larger amounts, and thus average fees can quickly explode.
This is only true when the mempool is congested because when the blockchain receives little traffic there is not much incentive for investors to add a significant amount of fees as the network has enough capacity to handle all types of transactions with enough speed.
Now, here’s a chart showing the trend in Ethereum’s average fees over the past few months:
Looks like the value of the metric has been elevated in the last few days | Source: Santiment on Twitter
As shown in the chart above, Ethereum’s average fees rose to quite high values about a week ago, when the asset’s price had started to fall below the $2,000 mark.
It is not uncommon to see rates explode during such volatile price action, as investors generally rush to make their moves (either buying or selling) whenever the market behaves like this, thus congesting the mempool.
However, the increase this time around was quite extraordinary, as average fees exceeded even those seen during the crash that followed the collapse of cryptocurrency exchange FTX in November 2022.
As Ethereum’s drawdown has slowed in recent days, the indicator’s value has also dropped sharply from its 11-month high. Now, the value of the metric has come down to just $5.28, which is about 35% less than what was seen last week.
This rapid drop in average fees suggests that the demand for transactions on the ETH network has dropped dramatically in the past week. However, while blockchain activity may be down relative to last week, the current indicator values are still quite significant.
ETH price
As of this writing, Ethereum is trading around $1,800, down 14% over the past week.
ETH has taken a plunge in recent days | Source: ETHUSD on TradingView
Featured Image by Michael Förtsch on Unsplash.com, Charts from TradingView.com, Santiment.net
