Ethereum price stabilized after a rough week and having a big effect on the tokens associated with DeFi projects

After a strong sell-off last week, ETH has lost more than 30% of its price in the past four-day drop. But, the Ethereum price has had better days. Today, Ethereum price is even up a bit, breaking a small 5-day resistance at $ 358. At press time, ETH is hovering around $ 364, up almost 2% over the past 24 hours.

Ethereum price up more than 5% and effecting on the tokens associated with DeFi projects

ETH relative strength index (RSI) —a metric created to estimate whether an asset is being oversold or overbought — shows that Ethereum is currently in a healthy market zone, with a lot of room for growth.

At this rate, it may not be surprising that ETH will test $ 380 soon, though a recent correction suggests that it will likely face some resistance along the way.

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ETH prices, 24-hour candles | Source: TradingView

In terms of market sentiment, Ethereum is nearly bullish throughout 2020. It started a year with a rapid uptrend before the COVID-19 pandemic, and the next financial crisis changed everything for everyone.

However, since March, ETH has continued its momentum – perhaps with greater force.

The market crash earlier this month was the only glitch comparable to the mid-March crisis in terms of impact. But it looks like the worst could be over. Again, this is a cryptocurrency, and you never really know it.

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The two major drops of Ethereum in 2020 | Souce: TradingView

Ethereum’s rally today is not an event, either. Bitcoin is also bouncing back a bit and is currently trading for around $ 10,350.

Furthermore, tokens related to the booming DeFi industry have made a similar recovery. For example, Yearn.finance (YFI) is up 13% and trading above $ 30,000. DefiMarketCap data shows several DeFi tokens exhibiting bullish behavior over the last 24 hours, including a jump of 66% for Uniswap’s ETH/SAND Pool.

Since Ethereum is home to the majority of DeFi products, it is not surprising to see such a correlation. The increase in ETH price will undoubtedly stimulate transactions on many Ethereum-based projects, especially those with large amounts of money at stake.

Then again, as prices go up, so are the annoying transaction fees that are ruining the network. And the vicious cycle continued.

Ethereum scalability issues exposed as high gas fees stall DeFi boom

While DeFi has provided investors with financial products through decentralized exchanges by way of various lending protocols that reward liquidity providers, this very facet of the technology has resulted in the creation of an undesirable environment of high transaction fees that, in turn, has gravely affected the value of many tokens.

Ethereum’s existing gas prices respond to the relatively limited number of transactions that one can facilitate using a single block. Miners, in such a scenario, can choose the highest-priced transactions as their priority, so the result is an increase in effective gas prices. There are several secondary reasons that have exacerbated the current situation, forcing Ethereum “core devs” to hold a virtual meeting on Sept. 4, with gas tokens becoming the main focus of the discussion.

In the most basic sense, gas tokens like Chi Gastoken (CHI) and Gas Token (GST) make use of a mechanism that refunds gas when storage space is freed on the Ethereum Virtual Machine. In the case of gas tokens, burning them destroys dummy “sub-smart contracts,” which some people believe may be more efficient than erasing data directly. To simplify the issue even further, gas tokens tend to designate a certain storage space within the Ethereum chain for minting rights at a later stage.

Essentially, users can spend a small amount of Ether (ETH) at current gas prices to secure gas that can be used later without the risk of the price going up, as the gas price at which the token was minted will be the gas price used.

On the subject, Jordan Earls, co-founder and lead developer of Qtum, a decentralized blockchain platform, said:

“This effectively causes the network to not respond properly to an increase in gas prices like we see today, as some people with access to these tokens can use this cheap gas now, but also get their transaction highly prioritized without actually spending any ETH.”

One of the most obvious solutions to mitigate the current gas prices could be to reduce the demand for Ethereum transactions. This can include the use of zk-Rollups and other layer-two scaling technologies. Another potential solution could be to make the blockchain and the smart contracts running on the network more efficient. However, such solutions are difficult to pull off on demand.

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