In the DeFi (decentralized finance) trading trend, the problem of Ethereum block capacity has attracted much attention. With the continuous emergence of DeFi applications, the block capacity of the Ethereum network has gradually become a controversial focus. The solution to this problem will directly affect the development direction and future pattern of the entire DeFi industry. Let us explore in depth the various consequences that Ethereum block capacity may bring in DeFi transactions.

Amid the DeFi boom, the block capacity problem of the Ethereum network has attracted widespread attention. As DeFi projects have sprung up, the transaction volume of the Ethereum network has increased dramatically, and the limitations of block capacity have gradually been exposed. The solution to this problem will directly affect the development direction and user experience of the DeFi industry. In this article, we will explore the root causes, possible consequences, and countermeasures of the Ethereum block capacity problem.

 The root cause of the Ethereum block capacity problem

As one of the most popular smart contract platforms at present, Ethereum's block capacity has always been a matter of concern. With the booming development of the DeFi market, the transaction volume of the Ethereum network has increased dramatically, resulting in frequent problems such as transaction congestion and soaring handling fees. This is mainly due to the design architecture of the Ethereum network, which has a limited capacity for each block and cannot bear the pressure of large-scale transactions. With the popularity of DeFi projects, this problem has become particularly prominent.

 Consequences of Ethereum block capacity issues

1. Transaction delays and congestion: Insufficient Ethereum block capacity will lead to increased transaction delays and network congestion. Transactions initiated by users may need to wait for a long time to be packaged and confirmed, or even transaction failures may occur, which will have a negative impact on user experience.

2. Fees soar: Insufficient block capacity will lead to a surge in transaction fees. In the case of fierce competition, users have to be willing to pay higher fees in order to speed up transaction confirmation, which is particularly disadvantageous for users of small transactions.

3. Limited DeFi ecosystem: Insufficient Ethereum block capacity will limit the development of the DeFi ecosystem. New DeFi projects may be hindered by the inability to conduct transactions smoothly, innovation is limited, and the prosperity of the entire DeFi ecosystem is threatened.

 Strategies for dealing with Ethereum block capacity issues

1. Layer 2 solutions: By introducing Layer 2 expansion solutions, such as Rollups and Sidechains, the pressure on the Ethereum main chain can be effectively reduced, transaction throughput can be increased, fees can be reduced, and user experience can be improved.

2. Ethereum 2.0 Upgrade: With the continuous advancement of Ethereum 2.0, the Ethereum network will gradually implement sharding technology, improve the overall transaction processing capabilities, and fundamentally solve the problem of insufficient block capacity.

3. Cross-chain interoperability: Promote interoperability between different blockchains, transfer some DeFi transactions to other public chains, disperse pressure, and improve the stability and scalability of the overall network.

 Conclusion

Amid the DeFi boom, the Ethereum block capacity problem is a challenge that needs to be solved urgently. Only through technological innovation, upgrading and ecological cooperation can the sustainable development of the Ethereum network and the long-term prosperity of the DeFi industry be achieved. Let us look forward to Ethereum's ability to rise to the challenge of block capacity and embrace a brighter future.

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Ganesh Swami, co-founder of ETH analytics firm Covalent, released data showing that decentralized finance (DeFi) transactions are taking up an increasing share of Ethereum block capacity, while the share of ETH transfers is declining.

Swami analyzed the gas costs incurred by Ethereum transactions over time to estimate the share of network activity represented by ETH transfers, simple ERC-20 transactions, and complex interactions with smart contracts commonly associated with DeFi protocols. Because the gas fees incurred by each transaction category are constantly increasing.

DeFi transactions “cannibalize” Ethereum block capacity

Swami noted that “the total amount of gas consumed by all types of transactions seems to be a natural cap,” which shows “strong demand for Ethereum block capacity” and the network’s “lack of scalability,” adding:

“In an ideal scalable blockchain network, all types of transactions have room to grow. But in Ethereum today, growth in one type of transaction must cannibalize the others.”

When looking at the relative proportion of transactions represented by each of the three categories, the data shows a steady increase in the number of complex transactions at the expense of ETH and ERC-20 transfers — with complex transfers growing from around 5% of network activity in early 2017 to between 20% and 30% in recent months.

Relative share of gas fees generated by each transaction category on Ethereum: Covalent

The graph also shows the rise and fall of ICOs, with ERC-20 transfers accounting for 20% of network activity in early 2017. ERC-20 transactions hovered between 10% and 15% of network activity for the rest of 2017, before slipping to 5% by mid-2018.

After a brief rebound to 10% in the final months of 2018, ERC-20 transactions have been declining, with ERC-20 transfers now accounting for less than 5% of Ethereum network activity.

Covalent Expects Big Turnaround on Ethereum

Swami predicts that as more decentralized organizations (DAOs), games, and other non-fungible token (NFT) applications are launched on Ethereum, complex transactions as a percentage of network activity will continue to rise.

As a result, the analyst expects this trend to soon drive a “big turnaround” where complex transactions (as a percentage of network activity) will exceed ETH transfers.