Although Bitcoin (BTC) has been in the spotlight since the beginning of the year, and even more, given Tesla’s recent $ 1.5 billion purchase, Ether is not far behind. Ether (ETH) is currently valued at $ 1,800, and the network has already handled more than 1 billion transactions, mainly driven by the DeFi sector, as well as increased institutional participation.

According to Enriy Jonathan Aege, a fellow at 21Shares, the European issuer of listed products, “Investors are aware that Bitcoin is part of a broader asset class and are now trying to diversify past Bitcoins.” He also told the Cointelegraph that for institutional investors, “the prospect of a purely technological game in the industry is exciting and is why Ethereum is becoming more attractive.”

As decentralized economies continued to grow, the products created began to spread widely. More than $ 47 billion dollars are currently locked in Defi’s liquidity protocols. The volume of decentralized exchanges has also grown significantly in recent months, reaching over $ 55 billion across all decentralized exchanges based on Ethereum.

As the volume of decentralized Ethereum-based exchanges and chain chain transactions continues to grow, Ethereum blockchain becomes very congested, sometimes charging a fee of $ 10 per single transaction. Since trading on decentralized exchanges takes place on the blockchain, exchanges on exchanges such as Uniswap can sometimes cost more than $ 100. Ilya Abujov, consultant for DApp DAppRadar Statistical Complex, explained the reason for the fee increase and told Cointelegraph:

“This is a combination of several factors: new project incorporation via DEX, cash withdrawals, deeper project integration and much more. The high gas costs do not affect whale users much, and they account for a large part of Defi’s size.”
Thus, there is the question of the viability of decentralized exchanges. Will the fees continue to grow indefinitely, or will Ethereum 2.0 put an end to the higher fees? Are there any plans to address this issue in the current version of Ethereum, and what other options will help reduce the cost of decentralized trading in and out of Ethereum?

Why are the fees so expensive?
As the number of transactions in Ethereum grows, so do transaction fees. The fees on the Ethereum network are based on the price and gas limit. Although the gas limit is quite stable and depends on the complexity of the transaction – for example, interaction with a smart contract will be more expensive than a simple transaction – the price of gas fluctuates a lot.

When there are too many transactions on the network, the blocks start to fill up, and thus miners choose those with the highest petrol price and leave others behind, which takes longer. When a user sets the petrol price or limit too low, the transaction will fail and he may lose the commission he was originally willing to pay.

Uniswap uses liquidity aggregators and an automatic market maker formula to match orders, instead of using order books as central exchanges. This means that all transactions take place on the blockchain using a smart contract that adds the token that the user sells to the pool and restores the token the user wants to buy from the same group.

As such, the fees for Uniswap and other Ethereum-based exchanges using Ethereum itself are increasing. A simple symbol change for Uniswap can cost hundreds of dollars in gasoline tax, making it unsuitable for retailers. Large trades can also be difficult to carry out because the more the volume of the exchange is tied to the liquidity pool, the worse the exchange rate.

However, Uniswap is the most widely used decentralized exchange, with over $ 6 billion in volume from February 5 to 11 alone, and the largest consumer of gas in the network. Given the profits generated by simply raising liquidity, growing crops and storing DeFi tokens, it is not surprising that people are willing to pay hundreds of dollars in commissions to exchange tokens that have not reached the central exchanges.

But what about the average user? Will a decentralized exchange be viable for people who want to trade efficiently, at low cost and without counterparty risk? Asked about the current feasibility of DEX on Ethereum, Kane Warwick, founder of Synthetix, a decentralized derivative protocol on Ethereum, told Cointelegraph:

Ethereum is currently relevant for mass use if we mean hundreds of millions of daily users. Petrol taxes are without a doubt the most obvious obstacle, but there are also many improvements to the user interface and the user interface.

Source: CoinTelegraph