On April 30, Yuga Labs, the company that owns Bored Ape Yacht Club, one of the most expensive collections of nonfungible tokens (NFTs), began selling their latest digital goods. For many buyers, the fees were too damn high. Some paid transaction fees more than five times higher than the cost of the purchased item.
The sale was part of Yuga Labs’s plan to launch a crypto-based metaverse game called Otherside, which will feature the Bored Ape characters. In Otherside, like other crypto-based games like Decentraland and Upland, the game’s topography will be subdivided into plots of virtual land, called Otherdeeds, sold to players as NFTs.
While the sale has brought in $253 million, the spike in demand flooded the Ethereum blockchain, driving up transaction fees called gas fees. Many buyers who paid less than $10 for an NFT had to shell out several tens of thousands of dollars in gas fees. One anonymous buyer of a $5,800 NFT paid about$45,000 in transaction fees. (Each parcel costs 305 ApeCoin, the Yuga Labs-backed currency, which is now worth about $4,600.)
The Otherside sale reveals how crypto-based marketplaces, beset by high fees, now favor the wealthiest speculators who can participate in the emerging digital markets.
What are Ethereum gas fees?
Every transaction on the Ethereum blockchain has fees associated with it. Anyone buying an NFT on the blockchain pays these “gas fees” to miners who dedicate computing power to validate blockchain transactions. Gas prices fluctuate based on supply and demand, but the fees have risen sharply. In April, the average price of an Ethereum transaction fluctuated between $7 and $43. On May 1, it shot up to $453 across the entire network.
Yuga Labs said the sale created so much demand that it crashed Etherscan, the website that tracks activity on the Ethereum blockchain. “We’re sorry for turning off the lights on Ethereum for a while,” Yuga Labs said in a tweet on April 30. The company also apologized for failed transactions, for which they paid gas fees, and promised to refund the costs of those transactions. A spokesperson for Yuga Labs declined to comment, but pointed Quartz to that tweet.
Why were gas fees so high?
NFTs have been on the rise in recent weeks. In April, users spent $2.89 billion on Ethereum-based NFTs, up 42% from March. When demand surges on the blockchain, the most popular chain for hosting NFTs, the network’s built-in fee system kicks in. This lets users pay more money to execute often time-sensitive transactions—like during a high-profile NFT sale—instead of waiting until network demand, and fees, fall. Otherdeed buyers likely think that high transaction fees are justified in order to get access to assets that may rise significantly in value.
Solana, a blockchain that competes with Ethereum, also faced heavy demand this weekend, which overloaded the system. (This activity was unrelated to the Otherside sales.) But Solana is more susceptible to network abuse by spammers or botsand saw its seventh outage since the beginning of 2022. Solana boasts low transaction fees and high speeds, says Anthony Georgiades, co-founder of the NFT infrastructure provider Pastel Network, but “the tradeoff is that it is more susceptible to network spamming or attacks, which are cheaper to exploit than on other networks like Ethereum.”
Crypto’s shortcomings
Adrian Baschuk, chief creative officer and founding partner at the NFT platform Ethernity Chain said that high fees and outages are going to plague crypto for the foreseeable future, as long as demand outpaces the blockchains’ abilities to manage the crush of transactions.
The Bored Ape Yacht Club universe is already incredibly expensive. The cheapest one can currently buy a Bored Ape NFT avatar, a popular profile picture on social media, is around $350,000. New buyers are entering the market to lock up a piece of virtual land in a possible Bored Ape-inspired game and paying exorbitant prices just for the opportunity to pay $5,000 per plot—with the assumption that its value will increase over time.
But what the Otherdeed sale showed most of all is the shortcomings of the Ethereum blockchain infrastructure to efficiently manage demand surges, while rewarding those able to pay the highest prices for claims to a speculative digital universe.
