Blockchains charge users transaction fees in order to incentivize miners or stakers for validating transactions and reaching consensus. Since most blockchains have limited capacity for fitting transactions into a block, transaction fees dynamically increase/decrease based on demand.
The aggregate amount spent in transactions on a given day represents the total fees, as measured by this indicator. Total fees are calculated by adding the aggregate amount spent in all transactions, either in crypto or dollar terms.
Fees have become somewhat of a controversial topic. This is the case as high spending in fees can be interpreted as high demand and willingness to pay for use of a blockchain, but can also price out users from making smaller transactions.
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Total fees for the Ethereum blockchain
Whether positive or negative, it is certain that fees are indicative of levels of activity. Typically, when fees rise it means that a high amount of users are looking to transact relative to a blockchain’s throughput. As demand increases, users are willing to pay more in fees to execute their transactions.
This has shown to be the case in periods of high speculation such as December 2017 through January 2018, when there was a spike in fees. That particular spike, however, looks small relative to more recent periods with higher demand and more use cases for blockchains.
As activity picks up, like during what is referred to as DeFi summer, the willingness to pay for blockspace increases and thus fees. For those unfamiliar with this topic, the summer of 2020 is known in the crypto space as DeFi summer because activity and total value locked accelerated quickly following the release of Compound (COMP) yield farming in June. As more protocols replicated these yield farming initiatives, users were willing to pay more to profit from these, causing fees to surpass those from 2017/18.
A few months later, fees on Ethereum kept growing as adoption of DeFi and NFTs spread. The total amount of fees are indicative of the high demand that took place during that time.
⭐️ Quick Tip: Watch out for sudden spikes in total fees as potential signs of FOMO or panic.
Ethereum blockchain total fees
Zooming into shorter time-frames, sudden spikes in total fees can be indicative of either FOMO (fear of missing out) or panic. The example above shows how FOMO into dog tokens on Ethereum such as Shiba Inu (SHIB) — where prices increased over 10x within a week — led to a massive spike in fees.
Shortly after this FOMO period, fees spiked even quicker as the market dropped and people were willing to pay high amounts of money to avoid getting liquidated, or to panic-sell.