Ethereum Dencun Upgrade: Impact on L2 and gas Fees

Ethereum is set to undergo the Dencun upgrade on March 13, a highly anticipated upgrade expected to reshape the future development of the Ethereum blockchain. Developers generally see this as an important milestone, especially significant for Ethereum's L2 networks.

The core of the Dencun upgrade is EIP-4844, also known as "proto-danksharding". This technology will introduce a new type of transaction that reduces rollup transaction costs through data blobs. These blobs exist independently in transactions and can be temporarily stored for data by rollup networks or other protocols. As a result, the cost of storing data on L2 networks on Ethereum will be significantly reduced, and this cost saving will ultimately benefit users.

The Impact of the Dencun Upgrade on L2

Different L2 networks have their own views on the impact of the Dencun upgrade.

The co-founder of a certain L2 network's development team believes that Dencun will reveal some interesting phenomena that will help reduce L1 fees. Since certain operations use a large amount of data on L1 but hardly any on L2, while other operations primarily use a large amount of data on L2, each ecosystem will decide on its own how to price and process data between L1 and L2.

The development team of another L2 network has been preparing the infrastructure for the launch of proto-danksharding. The CEO of the team stated that blobs will significantly reduce costs, but the extent depends on the price of the blobs used. If current data is added to the blobs, assuming the price drops by 10 times, then costs could also decrease by 90%.

A protocol director of a trading platform and a creator of an L2 network estimate that the open blob space of proto-danksharding is about four times the current usage of Ethereum rollups. At the current level of demand, transactions will become cheaper. If the utilization rate remains unchanged, costs could decrease by 90% to 95%. However, lower costs may lead to an increase in utilization, and ultimately, the fees could be 2 to 5 times lower than they are now.

The co-founder of another L2 network stated at the ETHDenver conference that fees would decrease, primarily due to supply and demand issues, with increased supply enhancing the data availability of Ethereum, but the exact extent of the decrease is difficult to predict. Another co-founder of the network added that there are differences in costs between ZKrollup and optimistic rollup, with certain aspects of the costs for ZKrollup being very low.

Impact of Upgrades on gas Fees

Experts believe that the Dencun upgrade marks the arrival of a new era for Ethereum. It is seen as a key step in enhancing user experience and scalability, with the potential to address long-standing gas fees and scalability issues.

L2 developers predict that the Dencun upgrade will significantly reduce gas fees, making transactions on the scaling network more affordable and easier to verify. The vice president of products for a certain L2 network stated that once all L2 networks update their settlement contracts, users can expect to save a substantial amount on gas fees.

According to a developer's estimate, assuming current network traffic levels remain unchanged, gas fees on L2 networks may drop by 75% immediately after the implementation of the Dencun upgrade. This is mainly due to the introduction of "blobs" and proto-danksharding, which provide a more cost-effective data storage method for Ethereum. Proto-dankSharding will allow L2 data to be temporarily stored for about a month, significantly reducing storage costs while ensuring security. This improvement is likened to expanding Ethereum into a four-lane highway, with potential for further expansion in the future.

A partner of a well-known non-custodial Ethereum Staking service provider stated that the most important aspect of the Dencun upgrade is to significantly reduce the gas fees for L2, gaining a competitive advantage over other competing public chains. At the same time, considering that the L2 sequencers are also "big consumers" of GAS on the Ethereum mainnet, after the upgrade is completed, a slight decrease in Ethereum mainnet gas can also be observed.

Transforming Trading Efficiency and Trading Costs

The expected decrease in gas fees could have far-reaching effects. In the future, users may not even need to bear gas fees. The vice president of a certain L2 network envisioned an abstract gas fee scenario, similar to how Web 2 giants attract users by covering the costs of services such as video conferencing and email.

Although the vision of no gas fees mainly exists on L2 networks, the Ethereum mainnet will continue to play a key role in ensuring data security and facilitating inter-network communication. It is expected that most on-chain transactions, including purchasing NFTs and other retail activities, will permanently migrate to L2 networks.

A developer believes that the Dencun upgrade will fundamentally change the way users interact with Ethereum, with the mainnet gradually moving to the background. This shift will eliminate the high costs associated with on-chain transactions, making activities like NFTs more accessible and affordable for users.

The CEO of a certain L2 network expects that by eliminating the barriers to integrating on-chain elements, cross-chain development can be promoted across various media and platforms. For example, he envisions that video games generating NFTs will interact with DeFi protocols and seamlessly leverage the presence of social media at minimal cost.

The upgrade will make Ethereum more rollup-centric.

The Dencun upgrade signifies that Ethereum is shifting towards an L2-centric scaling approach. Ethereum aims to slow down changes to its core components and focus innovation and user-level efforts on L2. Compared to the underlying chain responsible for scaling, rollups are likely the trend of future development. Major rollup participants have even begun coordinating with each other at L2 conferences to discuss and propose improvements. Changes to the EVM will not be brought to the Ethereum mainnet, such as new forms of account abstraction, precompiles, Opcodes, etc. With the implementation of EIP-4844, the ecosystem will begin to see the real impact of proto-danksharding. Moreover, it is worth noting that as more L2s join the blob space, the impact of cost reduction will gradually diminish.

Conclusion

The Dencun upgrade is expected to usher in a new era of scalability and low-cost transactions on the Ethereum blockchain, significantly reducing gas fees and improving related functionalities. This upgrade will further drive innovation and adoption of L2 networks, fundamentally changing the way users interact with the Ethereum ecosystem.