Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has seen a surprising drop in transaction fees, making it significantly cheaper for users to carry out transactions on its blockchain.
According to on-chain analytics firm Santiment, the average gas fee for Ethereum transactions over the past week was just $1.13. It represents a substantial decrease from the high fees experienced earlier in May, signaling a positive development for network users.
This decline in transaction fees can largely be attributed to the growing adoption of layer-2 scaling solutions. These solutions have gained popularity in 2023 due to their cost-effectiveness and efficiency advantages. L2Beat, a platform tracking the activity of scaling solutions, reported a significant increase in transaction activity on these platforms.
In fact, the average transactions per second (TPS) on layer-2 solutions were nearly six times higher than those on the Ethereum network over the last week.
Layer-2 scaling solutions were originally designed to alleviate the on-chain transaction congestion on Ethereum, and they appear to be fulfilling that purpose effectively. Santiment believes lower gas fees could drive further adoption of Ethereum and encourage more users to engage with the network.
Another contributing factor to the decline in gas fees is the continued movement of Ethereum holdings out of centralized cryptocurrency exchanges. Santiment’s data shows that on October 4th, the largest outflow of ETH tokens from exchanges in over six weeks occurred, with more than 110,000 ETH leaving exchange platforms.
As a result, the liquid supply of ETH has decreased to its lowest level in five and a half years, standing at 10.6 million. Conversely, the supply of ETH held in self-custody wallets has reached an all-time high of 115.8 million, accounting for 96% of all circulating ETH.
Potential Ethereum Price Rebound On The Horizon
Despite the cryptocurrency market’s overall sideways movement, ETH’s current low transaction fees may pave the way for a potential price rebound. Historical data analyzed by Santiment suggests that lower ETH costs often lead to increased utility and subsequent price recovery.
Ethereum is currently trading at $1,634.98, with a slight decline of 0.24% in the last 24 hours and a 2.23% decrease over the previous seven days. While price predictions in the volatile crypto market are uncertain, the favorable fee environment could influence Ethereum’s future performance.
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