After EIP-1559 (Ethereum Improvement Proposal), a part of gas fees in the Ethereum network will be burnt to reduce the total supply, it’s good news for any investor as the supply decreases, the price tends to go up. As the gas fees of Ethereum is high, a large amount of $ETH is getting burnt
An Avg. of 6.47 ETH is burnt every minute since EIP-1559 went live, on August 5, 2021.
When we look at other projects like Polygon or Avalanche whose gas fees are very low compared to the Ethereum network, how will the price go up, when people are not buying the native token to pay gas fees, as the gas fees are low or when the burn rate is less.
If the price has to go up, either supply has to decrease or the demand has to increase. These tokens or the networks with fewer gas fees, the demand comes from their DeFi protocols. Let’s see how?
As we know that Trader Joe is in the Top 3 DEXES (Decentralised exchanges) on Avalanche Network according to DeFi Llama.
When we look at the liquidity pools in TraderJoe, at least the top 10 pools.
8 out of 10 pools have $AVAX as one of their liquidity pair. Out of $1.4B TVL(Total value locked), only in top 8 pools that have $AVAX as their liquidity pair makes up to the TVL of $606M.
With the help of the above image we can conclude that most of the pools in TraderJoe consist of $AVAX in it, which means that if you have to participate in the Avalanche DeFi, you will have to buy more $AVAX, which in turn increases the demand of the coin & if in case you are also providing liquidity to any liquidity pool, you will have to lock-in your $AVAX token in the DeFi protocol which in turn decreases the selling pressure.
Collectively, it will lead to an increase in the price of the token $AVAX. Similarly, it’s the same with other L2 networks or networks with low gas fees.
Conclusion: High gas fees aren’t the only way for an increase in the price of the token.
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