Daily Ethereum (ETH) Transactions Are Approaching 1 Million

Ethereum (ETH), the second largest blockchain-based platform with a market capitalization of over $30 billion, has experienced a significant increase in the number of daily transactions settled on its network.

On May 27, 2019, more than 942,000 transactions were registered on the leading smart contract platform. On May 29, the Ethereum blockchain processed over 947,000 ETH transactions.

Ethereum transactions per day in 2019

Ethereum Network Activity Approaching Levels Seen in Last Bull Market

As confirmed by TrustNodes, Ethereum transactions have surged to their highest level since early February 2018. Notably, the activity level on the ETH blockchain is approaching levels last seen when the ether price reached its all-time high of $1,432.88 on January 13, 2018.

Although there was a significant drop in the total ETH transactions processed daily during February 2019 (due to the increase in Ethereum network block times), the activity on the blockchain platform is now increasing steadily.

Since March of this year, the number of ether transactions has been rising and the price of ETH has also surged to currently around $283.7 according to CryptoCompare data. This, after the ether price dropped below $100 in early December 2018.

Ether Price Recovering After Falling Below $100

The sharp decline in ETH price last year may partially be attributed to a relatively large number of blockchain startups selling their ether holdings in order to cover operational expenses. Moreover, the crypto token’s value may have plummeted due to a significant drop (at that time) in the price of bitcoin, the world’s most dominant cryptocurrency.

However, the cryptoasset market has started recovering after enduring an extended bear market that lasted throughout 2018. One of the primary reasons cryptocurrency prices have been increasing recently might be the launch of many new digital asset-focused projects.

Decentralized Finance Market Cap Approaching $600 Million

For example, the decentralized finance (DeFi) ecosystem has been growing rapidly and it mainly consists of Ethereum-based peer-to-peer (P2P) lending products - including MakerDAO, Compound, Dharma, among others. The current market capitalization of the nascent DeFi market stands at over $583 million according to data from DefiPulse

Other leading Ethereum-based decentralized exchange (DEX) protocols such as Uniswap and Bancor have also been experiencing increased activity. Meanwhile, the Bitcoin Lightning Network, which is also considered a part of the evolving DeFi ecosystem, has seen a sharp rise in the number of nodes.

According to 1ML data, there are currently 8,579 LN nodes - which represents an increase of 4.49% in the past month. The network capacity of the Lightning Network stands at over 1,000 BTC, an amount currently valued at over $8.8 million.

Trans-Fee-Mining Exchanges' Market Share in Decline - Report

  • TFM exchange volume down 53% in September
  • Only 32% of crypto trading volume is TFM volume

According to the latest exchange report from CryptoCompare (September), the trade volume on “trans-fee-mining” -- or transaction fee mining (TFM) -- exchanges dropped dramatically between August and September, more than halving. The overall proportion of transaction volume in the crypto markets comprised of TFM has thus declined significantly during this period.

Overall volume by fee-typeSource: CryptoCompare

Specifically, trade volume on TFM exchanges accounted for $174 billion during September, down from $375 billion during August. The more classical taker-fee exchanges, which charge a small percentage to execute a market order, typically outdo trans-fee exchanges even if only slightly. But during September, they exchanged $358 billion, up from $355 billion in August, far out-trading TFMs.

Transaction fee mining (or “mining”) occurs when users are rewarded, rather than taxed for executing orders on an exchange. Typically, exchanges allow free trades for users posting limit orders, which are orders set at a certain price. Otherwise, if users want to buy or sell immediately at whatever the current price is, they are usually charged a small fee. The rationale here is that exchanges want as many users as possible to post orders, so that order books are nice and thick (traders like liquidity).

Trouble With Trans-Fees

The TFM exchanges go one step further by rewarding all users just for trading on their exchanges, with in-house tokens. The idea is, again, to attract more traders and thus more liquidity.

In a sense, this model is the epitome of speculation, whereby users accrue large quantities of tokens betting that they will someday be worth more. Some have claimed, however, that this incentive encourages “wash trading,” an unwelcome form of market liquidity that is actually banned in traditional, regulated markets. This is when the same entity, or colluding entities, trade back and forth with each other.

In traditional markets, this is done in order to manipulate assets’ prices and set up exploitative trades. Here, the goal would be different but the effect is still undesirable: exchanges with high transaction volume but low order book depth may result in erratic price changes on cryptoassets. CryptoGlobe tackled the question last year of whether or not this sort of trading constitutes “fake volume.”

In CryptoCompare’s June 2019 Exchange Benchmark guide (pdf available here), exchanges employing the trans-mining model were generally classified as “Lower Quality,” despite volume on such exchanges rising as a percentage of the total market at the time. It seems that the trend may be shifting again.

Featured image via Pixabay.