The Ethereum network has seen its heaviest use ever in the past two months. Most of the new business can be attributed to the rapid growth of the DeFi sector, which is primarily based on the ETH blockchain.
Participation in most DeFi protocols requires users to transact between Ethereum (quotation in real time) and other ERC-20 tokens. As a result, increased participation in this rapidly growing ecosystem is driving huge demand for the ETH network. One result of this is the increase in transaction fees.
The data suggest that there is a historical correlation between commissions and market capitalization, and that the cryptocurrency could currently be underestimated.
Ethereum's transaction fees increase as DeFi's participation continues to grow
The launch of Compound in mid-June triggered a yield farming trend in which users take advantage of various guarantees in order to collect DeFi incentives. According to DeFi Pulse data, the emergence of this trend has significantly perpetuated the growth seen by the sector.
One parameter that clarifies this is the total USD value stuck within all protocols, which has just reached an all-time high of $ 2,57 billion. Currently, Compound has the highest USD value stuck within the protocol, followed by Maker and Synthetix.
The transactions taking place on these platforms are causing a sharp increase in Ethereum's transaction fees. According to data from Etherscan.io, the tariffs of the network are currently recording a trend around the highest levels ever seen.
There was a similar peak during the ICO-mania between late 2017 and early 2018, although growth has been less stable than currently seen. High commissions can be considered a sign of demand for the network.
The higher the commissions, the higher the demand. Of course, when this parameter tends upwards as it is happening at the moment, it is a sign of the integrity of the underlying network.
ETH's market capitalization is directly related to network demand
A Twitter user named Morgan Bennett recently unveiled a model that quickly gained popularity, showing that there is a linear correlation between ETH's daily earnings and market capitalization.
The cluster of current data points for ETH commissions suggests that the cryptocurrency has a market capitalization of around $ 32 billion. At the moment, Ethereum's current market capitalization is around $ 26 billion, about 20% less than the value emerging from the model.
What is important to consider here is not so much that Ethereum is (or is not) underestimated at the moment, but rather that there is a direct correlation between the network demand and the value of the cryptocurrency.
As ecosystems built on top of ETH continue to thrive, there will likely be a headwind that will also help raise the price of the cryptocurrency.
