Ethereum (CCC: ETH-USD) is now very congested and gas fees (transaction costs) are very high. One analytical group believes that one of its most popular decentralized apps (Dapps), non-fungible tokens (NFTs), is slowing down due to the high gas fees at Ethereum crypto.
And just in case you are not aware, many Ethereum transactions these days are done to buy NFTs. In fact, after trading on Uniswap (CCC:UNI-USD), the crypto exchange, trading on Opensea is the second largest use of Ethereum. Opensea is the largest NFT marketplace.
The analytical group, DappRadar, is very important in studying developments at Ethereum and NFTs. Don’t just take Opensea’s word that it is the largest NFT marketplace. DappRadar has a page that shows that in the past 30 days Opensea has had $2.6 billion in transactions (buying and selling of NFTs).
How Gas Fees Affect Ethereum and NFTs
To see what is happening with gas fees and Ethereum, let’s look at what is going on at Opensea. DappRadar has a page that shows in the past 24 hours there have been $80.5 million in transactions conducted on Opensea. It also shows that there were 30,900 users. Therefore, assuming both sides to a transaction got charged fees, the average transaction was worth $2,605.
To complete the analysis, we need to look at another very important site to watch. If you want to watch the prices of gas fees, look at Etherscan. That site also shows that Opensea has had $3.79 million in gas fees charged on Opensea, the largest NFT marketplace. Opensea deals in Ethereum and some Polygon blockchain.
Therefore, assuming that 90% of the transactions in Opensea are done in Ethereum (i.e, $72.5 million), the average fee has been 5.23%. This can be seen by dividing $3.79 million by $72.5 million.
So, this means that the average Opensea transaction has a cost of $151.93 on each side of the buy and sell. Plus, there is the cost of the wallet fee for transferring Ethereum to Opensea to pay for the NFT. That could easily add in another $30 to $40 or so. Now we are up to $180 to $190 per transaction.
In fact, if you look at the average Opensea transaction in the last 30 days ($2.76 billion) with 258,850 users, it works out to an average transaction cost of $10,662. Assuming 90% of these transactions are in Ethereum (i.e., $9,596), the 5.23% gas fees work out to $502 After wallet fees, that could be $550 for each buyer and seller on Opensea.
Gas Fees Are Driving People Away
People simply don’t like this. They don’t want to pay such huge fees to buy NFTs. This is exactly what DappRadar has concluded recently. The DappRadar article shows that even though activity in NFTs is increasing rapidly on all crypto blockchains, Ethereum’s gas fees have been causing lower activity on Opensea.
The article reports that Ethereum gas wars are driving up the transaction costs for NFTs, including minting and trading. Here is what DappRadar said:
“New NFT projects launch every day, and with those launches, collectors create gas wars in an effort to mint one or more collectibles. This NFT hype could very well be killing DeFi activity on the Ethereum blockchain.”
The article is actually quite intense and very technical. I had trouble following a good portion of it, but I also learned a lot.
Turning to Solana Crypto for NFTs
I also know that many people are turning to Solana (CCC:SOL-USD) to buy and sell NFTs. SolFlare is a very popular Solana-based wallet and Solanart.io is a very fast-growing Solana-based NFT marketplace.
Google Trends now indicates the Solana and Ethereum are in a “neck and neck” competition. This was spurred by the popularity of a famous NFT called the “Degenerate Ape Academy” or DegenApeAcademy, a Solana-based NFT series. In addition, Solana has its own version of the hugely popular Ethereum-based CryptoPunks NFT collection called SolPunks.
Here is the bottom line: Ethereum gas fees are driving NFT buyers and sellers to Solana-based and other NFT marketplace. That could hurt the rise of the Ethereum crypto price.
On the date of publication, Mark R. Hake held a long position in Ethereum but not in any other security mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.