The token space’s recent meme coin craze has helped the market bounce back to life, but it’s come at a cost. As PEPE and other meme coins run on the Ethereum blockchain, the network activity has surged and transaction fees have soared. This has raised concern about the cost of using Ethereum if ETH increases in price. It has also served as a reminder of the urgent need for Layer 2 solutions.
High fees on Ethereum
Ethereum is no stranger to high fees. Transaction fees, known as gas fees, are paid in ETH, so they increase in dollar price when ETH trades higher. When ETH is on the rise, the Ethereum network tends to be more congested, causing consistent fee hikes. Ethereum fees shot up during the token market’s 2021 hype cycle, pricing out regular users. This is partly why other chains like Solana outperformed that year. With meme coins all the rage, gas fees have been creeping up again. This comes as ETH sits about 60% short of its all-time high price. If using Ethereum feels expensive today, it would feel a lot more expensive if ETH reclaimed its peak in the future.
How Layer 2 could help
Fortunately, there is a fix. Talented teams are building Layer 2 solutions, new blockchains designed to support Ethereum and make the network more accessible. The likes of zkSync, Arbitrum, and Optimism already offer significant fee savings. Most leading Ethereum-native applications are expected to head to Layer 2 in the future. Still, the space is very young. The ecosystem is still in early stage development, and some have concerns about centralization. It could be a few years before Layer 2 fulfils its potential.
We’re well aware of Ethereum’s scaling issues at token.com. We’ve had to deal with rising fees in the past, and we know it’s been a blocker to growing the token ecosystem. token.com is mitigating the fee issue as we don’t ask customers to pay Ethereum fees to get ETH; this will be key to welcoming new adopters. We also offer exposure to Layer 2 technology tokens through our curated Collection, Ethereum’s Mass Adoption Mission. We feel it’s important to represent Layer 2 as it will be crucial to the token ecosystem’s growth.
Ethereum is a cornerstone of the token ecosystem. It probably will be for many years to come. But the network is not ready for mass adoption today. Layer 2 is the answer, and it’s going to change everything faster than anyone expects.
Mel Gelderman, CEO of token.com
Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.
