Although decentralized finance (DeFi) is gaining traction with over $8 billion in total value locked, it is testing the limits of what the Ethereum network is capable of.
The fever-pitch growth in demand for smart contract applications on the “world computer” has driven contract calls and gas transaction fees through the roof. Recently, Ethereum miners have even seen record profits of over $500,000 an hour for processing transaction fees.
Although this may be good news for miners, it may not bode well for a nascent industry which could see increasing transaction fees as an obstacle for growth.
“Gas is a huge challenge for a lot of our customers,” said Nikil Viswanathan, CEO and co-founder of Alchemy, in an interview with Decrypt media partner Forkast.News.
Alchemy is a blockchain development platform driving projects such as Dapper Labs, Bancor, Maker, 0x, and Kyber Network. Backed by a number of well known investors such as Peter Thiel and Charles Schwab—as well as rapper Jay Z and actor Will Smith—Alchemy supports more than 70% of the top Ethereum applications as well as about 50% of the assets locked up in DeFi, according to Viswanathan.
“One of our main focuses is solving all of the challenges that [developers] have when building these applications, and gas is at the very top of the list,” said Viswanathan.
“Since we launched a month ago, the amount of money locked in DeFi has 8x’d or something like that,” said Viswanathan. “So one of the really, really exciting things about the pace of innovation is the ability for it to be such an open source and open-minded space where people can create applications standing on the shoulders of other companies.”
With the rapid growth of DeFi congesting the Ethereum network, the issue of rising gas costs is a priority for a number of Ethereum developers, including co-founder Joe Lubin (who owns ConsenSys, which funds an editorially independent Decrypt) who told Forkast.News that scalability issues were the result of technological growth and development.
“I would be really, really disturbed if we weren’t having profound scaling issues at this point,” said Lubin in an interview with Forkast.News.
“We’re constantly bumping against this ceiling of scalability in different forms, and we need to do that in order to find out what needs to get fixed first,” Lubin said. “So we’re going to continue to bump up against scalability.”
Contract calls initiated by Externally Owned Accounts (EOAs) has almost tripled since the beginning of the year – from less than 300k to currently over 850k per day.https://t.co/fOXNrdNOFg pic.twitter.com/7XanWFOrhb
— glassnode (@glassnode) September 3, 2020
While the upcoming launch of Ethereum 2.0 aims to tackle issues with scaling, developers are still working on ways to smooth out issues on the current network. For example, Tether shifting its transactions to the OMG Network could reduce friction on Ethereum by 15%.
According to Viswanathan, other potential solutions include saving up gas tokens when they’re cheap in order to spend when they’re expensive, bundling transactions, or optimizing smart contracts to decrease gas usage.
“It’s a pretty technical area, but we see pretty exciting new innovations there that will hopefully create a better experience for gas moving forward,” Viswanathan said.