Sep 22, 2020
Uniswap and Ethereum: Record level of transactions on payday
Uniswap, already among the biggest?
Uniswap: responsible for the high gas costs on Ethereum?
Ethereum’s pending trades per minute jumped 30 percent after the decentralized trading platform Uniswap announced on Thursday, September 17 at 00:30 (UTC) the launch of its governance token, called UNI, with 1 billion tokens to be issued over the next four years. For DeFi, a new historical record of 1.4 million transactions has been reached.
Uniswap, already among the biggest?
Appearing in 2019, Decentralized Finance (DeFi) is a popular crypto-sphere term.
Since then, the platform, which and refers to the ecosystem composed of financial applications that are developed in addition to block chain systems.
DeFi can be defined as the movement that promotes the use of decentralized networks and open source software to create multiple types of financial services and products. The idea is to develop and operate financial DApps on a transparent and untrusted framework, such as permission-free blockchains and other peer-to-peer (P2P) protocols. It has continued to grow rapidly. By mid-2019, more than half a billion dollars were tied up in DeFi. By August 31, 2020, the total value of the blocked assets exceeded $9 billion.
The DeFi now regroups several financial products and services based on the blockchain such as:
- Decentralized exchange systems including Bancor, Kyber, IDEX, Paradex and Uniswap.
- Financial services such as the DeFi Saver
- Stable corners and decentralized reserve bank like MakerDAO
Concerning Uniswap, launched in 2018 by Hayden Adams with $100,000 in funding from the Ethereum Foundation, it is a cryptographic currency exchange system entirely based on intelligent contracts that allows exchange between a wide variety of tokens such as Ethereum, Maker, DAI, USD Coin, BAT, etc..
Being different from other trading platforms, Uniswap defines a new operating mode where prices are algorithmically set. It uses an innovative mechanism called ‘Automated Market Making’ to automatically settle transactions at a price close to the market price. In addition to the transactions, any user can become a liquidity provider, providing cryptography to the Uniswap contract and earning a share of the exchange fee.
September was Uniswap’s month, with the launch of its United Governance Token on September 17. The protocol gave 400 UNI to each ETH address that had used the exchange before September 1st, 2020.
Thousands of users from the Uniswap community obviously came forward and claimed, withdrew and exchanged UNIs. In a single day, the UNI had generated a transaction volume of $1.8 billion. The brand new token managed to make it into the top 50 of the list of the most widely used cryptocurrency tokens.
Major centralized exchanges, including Binance, Huobi and OKEx, listed transaction pairs for the UNI governance token, leading the token to a high of $8.60.
According to a post by Crypto Medici on Twitter:
‘UNI will be worth $3 to $5 billion. The distribution of the tokens was great and many of those who sold will return to the FOMO when we pass the billion dollar mark’.
This strong growth of Uniswap has a price: it has led to an increase in gas costs.
Uniswap: responsible for the high gas costs on Ethereum?
It is important to note that gas is the pricing value, necessary to complete a transaction to execute a contract on the Ethereum blockchain platform; its price is set in sub-units of the ether, called gwei, which is used to allocate the resources of the Ethereum Virtual Machine (EVM) so that decentralized applications such as smart contracts can be executed securely. The exact price of gas is determined by the miners in the network, who can refuse to process a transaction if the gas price does not reach their threshold.
According to Uniswap’s announcement, 15% of the UNI [150,000,000 UNI] can be immediately claimed by users and buyer/holders on the platform:
‘We are delighted to announce that UNI, the governance token of the Uniswap protocol, is now online on Ethereum’s website!»
As a result of this announcement, the number of pending transactions on the Ethereum network per minute increased from approximately 160,000 to over 210,000 at the time of writing, according to Etherscan data.
Within three hours of the start of the claims, Uniswap became one of the most requested projects in the decentralized finance sector with more than 18,000 transactions being sent to the smart contract address of the UNI governance token.
This also caused a new Ethereum gas boom; more than 5,000 of the 18,000 transactions were pending; Uniswap accounted for 35% of the network’s total gas consumption in the last 24 hours and the price of gas reached more than 700 gwei on the Ethereum network versus comparatively, 152 gwei on average on Wednesday, September 16 (UTC time), according to Etherscan data.
In a tweet, Matthew Tan, founder and CEO of Etherscan said:
‘The last time Etherscan’s site traffic reached its current level was during the ICO boom of 2017–2018. Congratulations to Uniswap for the successful launch of the UNI token’.
Glassnode data reveals that $1 million in fees have been spent in one hour since the introduction of UNI, which is a new historical record. The total amount of fees for registered ether miners has also increased from $100,000 to $900,000 in less than an hour. With the crazy and growing interest in the world of DeFi, Ethereum miners have earned up to $1 million in just one hour. The miners’ earnings reached $938,000 per hour.
Ryan Watkins, research analyst at Messari, said:
‘Ethereum is pretty damn useless right now. I can only imagine what retailers will think if they end up entering this market and have to deal with gas charges of over $50 and transaction confirmations of over 10 minutes; that’s what worried me the most in this bull market. The protocols are ready, the infrastructure is not’.
Watkins believes that with Ethereum’s high transaction costs, this could be detrimental to the growth of the DeFi and crypto space in the long term. Indeed, Ethereum’s high transaction costs could hinder the bull market as the majority of retail users could be squeezed out of the market, leaving the whales to dominate.
Rising gas costs on the ethereum blockchain are not new; the rush to claim Uniswap tokens allocated to users has caused a larger than usual increase. Could this mean that we are experiencing network congestion? Would the release of Ethereum 2.0 be the only solution to this gas cost problem?
Written by Laetisia Harson, Project Manager at Magna Numeris
