In Last 24hrs, Uniswap Passes Bitcoin in Fees by $15 Million
Important update (March 31, 2021): Uniswap’s record trading volume was largely inflated, and not entirely accurate. Hayden Adams, the creator of Uniswap, has since said that such inflated numbers will not count toward Uniswap’s tracked volume.
As the first quarter of the year ends, the cryptocurrency market has shown great resilience and returns. The market opened with Bitcoin’s bull run engulfing all headlines. NFTs quickly followed as people purchased works of digital art worth millions of dollars—sometimes many millions.
Now, a growing number of institutional investors are participating in the purchase of Bitcoin. Yet when it comes to fee generation, there’s a protocol that has just passed Bitcoin.
Uniswap Just Charged Over $20 Million in Daily Fees
However, a recent report by data tracking website, CryptoFees, has revealed that Ethereum-powered decentralized exchange Uniswap has generated $15 million more in fees compared to Bitcoin, over the last day. At the time of publication, Uniswap generated $20,001,392.43 over the last 24 hours while Bitcoin has generated $4,790,573.01.
Of the 30 other networks that CryptoFees tracks, Ethereum tops the table. The second cryptocurrency by market cap generated total fees of $21,531,840.61 over the last 24 hours.
When the average daily fees generated over the last 7 days are considered, the data is much closer. Uniswaps 7-day average sits just under $5.8 million, while Bitcoin sits at $4.18 million. Of course, this shows a drastic increase in Uniswap’s fees over the last 24 hours.
High fees are not a rare thing in today’s DeFi ecosystem: Ethereum-powered protocols must pay unusually high transaction fees. According to a recent report by Coin Metrics, the median fee for transactions on Ethereum has consistently remained above $10 for most of 2021. It’s not strange that Uniswap consumes a lot of gas. ETH Gas Station reports that in the last 30 days, Uniswap has generated a massive $2 million in ETH fees.
Yet the high fees do not seem to deter users from Uniswap. So, what exactly is Uniswap?
Quick Explainer on Uniswap
A large volume of crypto trading occurs on centralized exchanges like Binance and Coinbase. These exchanges are controlled by a single authority, and they require traders to place assets under the trust and security of an exchange. To facilitate trading, they use an order book.
Order books manage the buy and sell orders on the exchanges. In order for a trade to be successful, these require a buy order to be matched with a sell order on the opposite side of the order book, and vice versa.
This results in a significant problem which burdens centralized exchanges: liquidity. Meaning that the number of orders on the buyers’ and sellers’ side on the order book must match at any given time. If there’s low liquidity, this can mean that traders will not be able to fill buy or sell orders.
Enter Uniswap. Uniswap is a decentralized exchange protocol built on the Ethereum blockchain. Because it’s fully decentralized, it’s not owned or operated by a single entity. It uses a new trading model—automated liquidity protocol.
The Uniswap protocol was created by Hayden Adams in 2018, as an open-source software. Since it functions as a decentralized exchange (DEX), users own and control their funds in comparison to centralized exchanges that require traders to give up their private keys.
Uniswap is built on a non-traditional architecture of digital exchange that has no order book. It runs on two smart contracts: an “Exchange” contract and a “Factory” contract. These are automated computer programs designed to perform specific functions when certain conditions are met.
According to the latest figures by DeFiPulse, Uniswap is currently the sixth-largest decentralized finance (DeFi) platform and has over $4.3 billion locked away on its protocol.
Uniswap and ETH Gas Fees
The current Ethereum market cap stands at $209 billion. Following a gold rush into liquidity mining, high gas fees on the Ethereum network have been widely discussed in the crypto community. DeFi players such as Uniswap are pricing out other uses of the Ethereum blockchain, including those that involve games, NFTs, and decentralized autonomous organizations.
After the appeal of DeFi platforms over traditional platforms became apparent, the total value of assets locked in Ethereum protocols surged from just $1 billion last June to over $42 billion this March. The DeFi boom has continued to soar as new projects continue to pop up on Ethereum, and others such as Binance Smart Chain.
But the skyrocketing transaction fees on Ethereum has made DeFi an expensive venture. Open lending protocols, one of the popular uses of DeFi, has suffered setbacks as users would not only pay high gas fees to deposit their collateral and take out a loan, they also pay another fee to repay the loan and retrieve their assets. Also, loans lower than $1,000 inadvertently get gas fees higher than the interest due. Last year, a clumsy trader mistakenly paid $9,500 in fees for a $120 transaction on Uniswap.
Uniswap is popular among traders for its deep liquidity, open liquidity provider capabilities, and massive range of assets supported. It appears that with Uniswap surpassing Bitcoin in fees generated, the high gas fees aren’t showing any signs of abating soon.
Though the Uniswap platform has a 0.3% fee for trades, during peak times, it can go as high as $100 per trade. These nightmarish fees can make it difficult to turn a profit when trading with low amounts since transaction fees will cut into profit to be made.
DeFiPulse revealed that at the start of the year, only about $1.5 billion was locked away on Uniswap. Within the last three months, this number has grown exponentially to $4.3 billion.
What Do High Gas Fees Mean for DeFi?
As the Uniswap gas fee continues to rise, it brings up the concern of whether Ethereum is the right platform to support the ever-growing DeFi ecosystem. Recently, Vitalik Buterin, the co-founder of Ethereum, emphasized that the solutions for high gas fees already exist via Ethereum second-layer solutions.
However, other blockchains with lower transaction fees like Tron’s JustSwap and Qtums Qiswap may begin to take over from Ethereum’s Uniswap. Although they don’t offer the kind of liquidity found on Uniswap, their fees are negligible. Cointelegraph reported that Binance’s PancakeSwap is eating into Uniswap’s market dominance.
The current situation of the Ethereum blockchain points to its unfriendliness toward newcomers and people trading with low amounts. Though more people are adopting DeFi, it’s only a matter of time before gas fees chase them away—unless we soon see a change.
Do you think Ethereum’s gas fees will fade away anytime soon? Have you used Uniswap recently? What was your experience? Let us know in the comments below.