Ethereum Price Crash Causes ‘Extreme’ Network Congestion; Gas & DeFi Shot Up
- Ethereum price sees its biggest percentage drop ever
- Borrowing demand for DAI is currently at record levels
- ETH median gas price just spiked to the highest level it's been in over 1 year
- Ethereum network clogged while unconfirmed transactions rose because of this Binance increased ETH withdrawal fees by 100% and ERC20’s by 66%
Today’s crypto carnage saw the second-largest cryptocurrency losing 33 percent of its value and is currently trading at $141.44.
The price of Ether fell from about $200 to as low as $129, making it the biggest percentage drop in the digital asset’s price. Ever. And this has been on the back of substantial volume as currently, over a billion dollars worth of Ether are exchanging hands-on top ten exchanges with real volume.
This drop came amidst the broader market turmoil. For the first time since May, Bitcoin dropped to $5,700 level and the US stock market extended its losses on Thursday triggering yet again a trading halt within 10 minutes of the market opening.
The global markets are suffering because of the continued uncertainty and fear about the coronavirus (Covid-19) which has been declared a pandemic by the World Health Organization (WHO).
This black swan event, however, had a lot more complications for Ether besides just price.
Massive network congestion
The crash in Ether price resulted in the price of Gas, the computation power on the Ethereum network to shoot up. Measured in gwei, Gas prices went to 100, making the cost of sending basic transactions in the next block north of $0.30.
⚠️ Be advised that gas prices are extremely high right now ⚠️ pic.twitter.com/eLmMerH3iG
— ETHGasStation (@ETHGasStation) March 12, 2020
“Ethereum's price drop has lead to massive network congestion. ETH median gas price just spiked to 29 gwei – the highest it's been in over 1 year,” noted crypto analysis company Glassnode.
Similar spikes in gas prices have been seen during bouts of volatility in the past as well.
Apart from the gas price, the Ethereum Network is also having a considerable backlog, clogging transactions for as much as an hour and more. As per Etherscan, unconfirmed transactions on the Ethereum network jumped to 120k today, for which reportedly ERC20-based Tether (USDT), which crypto exchange Binance disabled for a short amount of time and DAI liquidations are responsible.
#ETH network congestion. Average time for confirmations 2680 seconds (44 minutes) https://t.co/a2U8vF3Q9P pic.twitter.com/nPENzWA4yH
— CZ Binance 🔶🔶🔶 (@cz_binance) March 12, 2020
To run things faster, Binance increased the ETH withdrawal fees by 100% and ERC20 withdrawal fee by 66%.
“To better facilitate ERC20 and ETH withdrawals during this period of high congestion on the ETH network, we are making the following temporary adjustments: ETH withdrawal 0.003 ETH is now 0.006 ETH. ERC20 withdrawal 0.006 ETH is now 0.01 ETH. Withdrawals will re-open shortly,” announced the exchange.
Another impact of this price crash has been on the Decentralized Finance products (DeFi). The decline in Ether price caused liquidations of DeFi derivatives trading and collateralized debt.
As the network is congested, it means it is taking time for the collateral to get liquidated. With a dominance of 58% in DeFi, it affected the Maker users. MakerDAO participants are advised to repay, pay back debt, or add more collateral to increase their ratio.
The network is extremely congested.
The price in the MakerDAO protocol has actually not changed yet – it still remains at 166 with the next update still not certain.
This is the only price that matters (the one in the protocol) when it comes to liquidations.
— DeFi Saver (@DeFiSaver) March 12, 2020
For automation users, DeFi Saver, a management solution for decentralized finance protocols said they “cannot provide any guarantees regarding outcomes” in a scenario where the price in a user’s MakerDao drops below their liquidation price.
Not just in bear markets but in booming periods as well, Ethereum Network has gotten congested.
Due to extreme price movements in the market today ($DAI is currently trading > $1.05), borrowing demand for DAI is currently at record levels.
Further, the Ethereum network is clogged.
Compound is operating normally, but it may take longer than normal to withdraw DAI.
— Compound (@compoundfinance) March 12, 2020
One positive thing that happened during today’s bloodbath is an increment of 6.7% in the ETH locked in DeFi. It yet again jumped above 3 million, according to DeFi Pulse.