Ethereum’s network fees have fallen to less than a dollar for simple transactions, and less than a tenner for complex transactions involving different token swaps.
That’s for the first time in nearly six months, with fees falling from an average of $70 in May, to now just $4 per transaction.
A partial reason for this reduction in network congestion appears to by Polygon (Matic), which has recently launched and has seen a significant uptake.
According to Nansen analytics, Aave has seen some 10,000 daily active users of ethereum through Polygon while Sushiswap has close to 16,000.
Other prominent dapps have adopted this too, like Curve and 1inch as well as the 0x exchange.
Onchain ethereum itself has reached about 1.7 million daily transactions, with Polygon already handling much more as you’d expect because the tradeoffs are a lot more lax on second layers (L2).
Like all second layers in general, the basic concept here is similar where end users of the network are concerned.
You first deposit your eth, with there being conflicting information as some say $9 billion has been locked, but on etherscan we could find about one million eth, or $2 billion.
There may be other addresses and we tried to get clarification, but not in time for publishing. Even at $2 billion however this is a huge jump for a new network and a stark contrast to bitcoin’s Lightning Network (LN) which has only about $45 million bitcoin locked.
That’s probably due to defi pressures significantly incentivizing second layer adoption in eth because it is a more repetitive use of the network than one off transactions as is usually the case for bitcoin.
Once the funds are deposited, in this case the eth becomes a token on the Polygon chain, and thus accounts are now kept outside of the ethereum blockchain system.
To get back the eth, the token is burned, the PoS validators validate the burn, and you get the eth.
As such which eth you deposited exactly doesn’t matter, likewise for the token which is effectively always one eth, as they’re all fungable.
That means one can have a design of a code based fractional reserve layer, perhaps based on hot wallet and cold wallet cex divisions, to put to use the ‘cold wallet’ eth by maybe lending them or having them as a flashloans pool.
The users of this system can then get some dividends for the risk, and obviously they’re fully free to choose whether to risky fractional or go full collateral.
Currently all this is far too new so everything is one to one, but Sushi already paid some $1.4 million eth in dividends to sushi token holders based on Polygon activity, making this if not the first then one of the first such synergic usage.
Polygon however is in a linguistic battle regarding its classification, with some calling it a sidechain rather than a second layer.
This distinction hinges on just how much of ethereum’s on-chain security it uses, with zk-rollups for example being kind of a code based condensation of ethereum’s on-chain transactions. Meaning your sort of get the full ethereum security.
Here obviously there’s another PoS network that has part in security, as well as a Plasma version, with its primary advantage as it stands being the fact it is live.
Others are coming, when we should get more refined critiques regarding advantages and disadvantages, though during the bull honeymoon probably mostly the former and then the brutal decimation of any weaknesses during long bear.
By the next cycle we should hopefully get bridges for bridges, connectors of all these second layers, to a potentially sufficiently refined point that we can maybe declare the era of dial-up is over.
Until then these are relatively risky because they haven’t been battle tested in the wild, and because this is the crypto space so we don’t know what we don’t know until we know it.
But there’s now some $57 billion worth of crypto, about nine million eth, locked in defi dapps. So there’s huge pressure to get scaling with or without tradeoffs, and thus that experiment has now began.
