Why are transaction fees on Uniswap (and other DEX) so high, and how will average txs fees decrease with Fantom Opera mainnet? Let’s do the math!

Hello there! Today, I will explore why exactly transaction fees on Uniswap (and other DEX) are so damn high, whether this will keep this way (or not) and by how much shifting some txs burden to the Fantom Opera mainnet would decrease fees and duration.

Why are transaction fees on Uniswap so high?

Uniswap executes smart contracts running on Ethereum, all of which require gas to be verified.

When I send ETH from one address to another, txs are moderately low (meaning, they don’t let me contemplate both life and the reason why crypto exists in the first place). However, when I want to swap tokens on Uniswap, this is not only one transaction, but a bunch.

If gas prices would be low, and if ETH would be cheap, that would not be a problem. However, both are not true anymore, and now we are facing ridiculous high fees that prevent DeFi from flourishing.

Also: Many people will lower their txs fees (and wait longer), others will increase it to prioritize their transactions to be executed faster. I remember “from the old times” in 2017/2018, that sometimes, ICOs were spammed with transactions with very, very high gas prices from whales that desperately wanted to have the tokens. I am sure that is the case today as well.

The moment you realize that insane transaction fees only profit ETH miners that will do everything in their power to prevent any other network from flourishing, having possibly billions of dollar at their disposal.

Transactions will a low set gas price will possibly never be processed, leading people to increase their gas prices to get a place in the queue. This fuels a death spiral that leads to even higher gas prices. If Ethereum would be the backbone of our economic fundament, you’d go to McDonalds to exchange your money for a Big Mac with Coke (7$) and only the handing over of the money would cost you an additional 40$, raising the whole price to the average cost of a McMenu in Switzerland today.

In practice:

“Today, I will do something stupid: I will use Uniswap and burn my money in the process.” — Alexej to his girlfriend who just wanted to go for a walk in this beautiful sunny weather.

First, I will transfer ETH from Binance to my ETH address. This cost me 0.008 ETH.

All I want to do now is to use Uniswap to swap 0.01 ETH for.. eenie meenie miney moe.. YFI.

And here you go: https://etherscan.io/tx/0xcc2b54e179d4b9f2588ad7d69c23be202297b9c235ff28a18d2401a6aaf0d2c4

I traded 0.01 ETH for 0.000454734 YFI (worth 13.72$) and I paid 14.46$ in transaction fees (0.0105443877 ETH)

When you look at the swap, you will see that there were actually two transactions:

But wait, there is more:

Now assume I want to trade my YFI for.. AAVE:

First, I need to approve YFI for Uniswap. This costs me 5.19$ (0.003783265 ETH):

https://etherscan.io/tx/0xe0f2fd245f20b40696b6f371486ba838ee98d2fc5ebc397902c129cee8e1fe9d

The actual swap costs me 42.91$ in transaction fees.

See here: https://etherscan.io/tx/0x36a7131a4af277d640b14b05e37d19181e84dda995ccfb35c4c595ac48d09650

A lot of transactions are needed to perform a token swap

Of course, gas prices vary a lot, due to the rising/decreasing ETH price, congestion, etc. Based on the above transactions, we can deduce the following:

Price list for Uniswap (Ethereum)

  • Send ETH from Binance to ETH wallet: 0.008 ETH
  • Swap ETH for another token on Uniswap: 0.0105443877 ETH
  • Approve this token on Uniswap: 0.003783265 ETH
  • Swap a token (non-ETH) with another token: 0.03124368 ETH

Currently, daily transactions on Uniswap are 138,602. If we assume a very under-average price of 0.02 ETH per transaction, that is 2,772 ETH per day only for transaction fees.

What would my trading habit cost on Uniswap (Ethereum)?

In 2020, I did a total of 1,122 trades with approx. 24 different coins. (BTW: Cointracking.info is really good to get transparency on your trading).

Of course, most of those trades were on centralized exchanges. However, this should not be the case forever. One big important element of Blockchains is to implement decentralized finance, and I urge everyone of you to get your tokens from centralized exchanges.

Let us assume that I wanted to do all my trading on a decentralized exchange and that Uniswap would be my choice.

Let’s replicate my 2020 on Uniswap:

  • I send ETH from Binance to ETH wallet once: 0.008 ETH
  • I will (eventually) approve 23 tokens on Uniswap: 23x 0.003783265 ETH = 0.087015095 ETH
  • I assume that 70% of my trades will be from ETH to another token: 70% x 1,122 x 0.0105443877 ETH = 8.2815621 ETH
  • I assume that 30% of my trades will be inter-token trades: 30% x 1,122 x 0.03124368 ETH = 10.51662269 ETH

→ It would cost me 18.8932 ETH in transaction fees to make all my trades from 2020 on Uniswap (Ethereum).

What is being done to solve this issue? An introduction to Fantom

Fantom is a fast, high-throughput open-source smart contract platform for digital assets and dApps. With its aBFT consensus protocol it is, technology-wise, more like IOTA or NANO. However, as it support the Ethereum Virtual Machine, it looks and feels like Ethereum. Information can be found here, or here, or here in a Telegram channel.

There are a lot of projects currently working with, or working on Fantom: SUSHI, ANY, CREAM, MATIC, K3PR, YFI, CRV, GRT, FSN, SFI, just to name a few (plus many governmental projects and institutional investors)

Let us assume the following scenario:

  • I want to trade like I did in 2020 (1,122 trades with 24 different coins)
  • Exchanges only accept ERC20-tokens, I need to withdraw and send ETH (and other tokens) from and to exchanges via ETH chain.
  • An Uniswap-like exchange (decentralized) is built up on Fantom Opera mainnet (coming soon, either from Fantom itself, or Uniswap FTM)
  • Bridges are built up easily enable cross-chain swapping

What would my trading habit cost on Uniswap (Fantom)?

And now let’s replicate my 2020 on a fictive Uniswap on Fantom mainnet:

  • I send FTM to my wallet for 0.0004664 FTM (let’s increase it to 1 FTM if Binance is being a bitch)
  • I will (eventually) approve 23 tokens on Uniswap FTM: 23 x 0.0004664 FTM (normal transaction) = 0.0107272
  • For the moment I will say that all my 1,122 will include a token-to-token swap. Here, I will (based on this transaction) assume: 1,122 x 0.047957976 FTM = 0.5233008 FTM

→ It would cost me 1.5344944 FTM in transaction fees to make all my trades from 2020 on Uniswap (Fantom). This assumes that all transactions will be on the Fantom Opera mainnet. It is reasonable to think that transactions fees might increase 2x-5x, so to make completely sure, let’s round it up to 10 FTM.

Lessons learned today

  1. If I would have made all my trades in 2020 on a decentralized platform like Uniswap, it would have cost me roughly 18.8932 ETH in transaction fees (with today’s fees), which is rougly 25.500$
  2. If I would have made all my trades in 2020 on a decentralized platform like Uniswap, but which is built on Fantom Opera mainnet, it would have cost me at top 10 FTM in transaction fees, which is rougly. 4$. Let us assume that by then, the price will increase by 10x, which increase the transaction costs to 40$.
  3. All assumptions aside: Decentralized Finance on Ethereum is expensive af and there NEEDS to be a solution
  4. This solution CANNOT be a centralized chain
  5. There is a real possibility and chance now to help the Ethereum network by “outsourcing” a lot of transactions to another tech, and the Fantom Opera mainnet is not only compatible to do so, but faster and way, way, way cheaper.

Thanks for reading!

“It is not decentralized as they call it in any manner. The reality is that Binance is the owner and controller of the system and the fact it is run in many servers means that it is distributed not decentralized. There is in fact no such thing as a decentralized exchange. You send your money into the exchange and they have custody or control. This is merely puffery designed to mislead regulators.” (Link)

Fuck centralized blockchains. Fuck BSC as equally hard as XRP. (Also: Transaction costs are highter than on FTM and as BSC works, in technology terms, like a “usual” blockchain, it will only get more expensive and slower. But fuck centralization is the main reason)

Believe it our not, I really though that testing Uniswap by myself and paying all those transaction fees would lead to an interesting, and maybe even competitive comparison between ETH and FTM transaction fees. Now I spent 50$+ in fees, and I got nothing out of it (except of some AAVE).

For donations: FTM Opera address: 0x7d6d08603a886892B2158a1d39Cd3d9D67E74Ce8

Thank you!