Ethereum Cancun upgrade is successful: take a quick look at the Layer2 projects with explosive potential in 2024

Ethereum has successfully upgraded again!

At 13:55 on March 13, 2024 (UTC time) [Singapore time is 21:55 on March 13] Dencun has been officially activated on the 269568th epoch of the Ethereum mainnet .

This upgrade is the key to further expansion of Ethereum. It can increase the number of transactions that the Ethereum network can respond to per second, and will also usher in a new stage of development in Ethereum's data storage and retrieval capabilities.

imToken now supports all Layer2 networks and EVM-compatible chains on Ethereum. After the Dencun network upgrade is completed, users holding digital assets can use imToken to experience asset transactions on the Ethereum Layer2 network with higher cost-effectiveness and cheaper gas fees.

Impact of Dencun upgrade

For blockchain users holding digital assets: Since 90% of the transaction costs paid by users in Layer2 exchanges are caused by data storage, after the Dencun upgrade, the Gas fee required for digital asset transactions on the Ethereum Layer2 network will be significantly reduced, to only one-tenth of the current level, or even more.

According to IntoTheBlock, Aribitrum's transaction fees will drop from $2.02 to $0.4; Optimism's transaction fees will drop from $1.42 to $0.28; Base's transaction fees will drop from $0.58 to $0.01.

△ Data source: Dune

△ Data source: I2fees.info, statistics as of December 8, 2023

Dencun upgrade data is speculation

For blockchain developers: After the Dencun upgrade, you need to upgrade your client in time, check the Ethereum technical protocols included in this Dencun network upgrade, and determine whether these protocols will affect related projects - this Dencun network upgrade introduces many exciting new features to both the execution layer and the consensus layer of Ethereum. The only Ethereum technical protocols with backward compatibility impact are EIP-6780, EIP-7044, and EIP-7514. In addition, the Goerli test network will no longer be available.

For the blockchain ecosystem: After the Dencun network upgrade is completed, the Ethereum Layer2 ecosystem will accelerate its development because of the significant reduction in transaction costs. While reducing costs, the Dencun upgrade will also bring efficiency in data processing speed to the Ethereum Layer2 network, and there may be an opportunity to increase transaction speed by 100 times. Such development has actually brought more intense competition to the Layer1 public chain, but for the Layer2 ecosystem, the competition has just officially begun, and more dark horse projects will appear in the future.

At present, the total market value (TVL) of the well-known Layer2 project Aribitrum is second only to Layer1 public chains such as Tron and BSC. The total market value of the well-known Layer2 project OP Mainnet (formerly Optimism) is slightly lower than Aribitrum, but it is also ahead of some well-known public chains, such as Solana.

Why can Layer2 enjoy the huge benefits brought by Dencun upgrade?

Among all the technical protocols implemented in the Dencun upgrade, the most important one is EIP-4844. This protocol is also the primary contributor to promoting the Ethereum Layer2 ecosystem to truly reduce costs and increase efficiency.

In the operation of Layer2 ecology, Ethereum mainnet is usually used as the data availability layer (DA layer), which can make full use of the security and data integrity of the mainnet and prevent transactions on Layer2 from being maliciously attacked or tampered. However, due to the limitations of the block capacity and transaction throughput of the Ethereum mainnet, it is actually difficult to support Layer2 network transactions with a data processing volume per second that is dozens of times that of the Ethereum mainnet.

These contradictions have always existed in the past, and also led to the fact that before the Dencan upgrade was completed, a large number of Layer2 transactions often had to spend a lot of time waiting for block confirmation in actual operations, or had to pay higher Gas fees in order to confirm transactions as soon as possible.

Therefore, in the long run, if Layer2 can only rely on the Ethereum mainnet as the data availability layer, there must be an obvious bottleneck in the future development of Layer2.

In the Dencun upgrade, the EIP-4844 technical protocol introduces a new transaction type, Blob. When a transaction is in progress, EIP-4844 can move the transaction data to a new Blob for temporary storage.

The existence of this Blob is similar to adding a parallel data storage channel to the Ethereum main network. In actual operation, the data in the Blob is stored by the nodes of the Ethereum consensus layer, so it cannot be read by the Ethereum virtual machine (EVM) of the execution layer. It is through this data separation that the original intention of helping the Ethereum main network to carry Layer2 data is realized, and the problem that before the Dencun upgrade, the transactions of the Layer2 network need to wait in line for verification and confirmation with the Ethereum main network data, thus consuming a lot of gas fees and waiting time is solved.

At the same time, in order to reduce the pressure on the main network, the Blob data will be deleted after 18 days. In addition, the EIP-4844 technical protocol sets an upper limit on the storage space added to each beacon block, which is limited to a maximum of about 0.5 MB of data (about 4 blobs), but this upper limit is expected to increase in the future.

It can be seen that the core problem that Dencun solves by upgrading to Layer 2 is still the data problem.

Before the Dencun upgrade is completed, solutions that rely on third-party public chains to act as data availability layers are also popular. The most well-known is the Celestia blockchain. This blockchain itself can carry a large transaction volume, so it can help verify transactions on Layer2, and then upload the transaction status back to the Ethereum main network in batches. It is a highly modular data availability solution. At present, many application chains in the Cosmos ecosystem use Celestia as the data availability layer.

However, the solution of relying on a third-party public chain to solve the Layer 2 data capacity problem will certainly not be as likely to gain more consensus or trust as the Ethereum mainnet as the data availability layer in the short term. The Blob temporary storage introduced by the EIP-4844 technical protocol implemented by the Dencun upgrade has therefore become a solution that benefits the current Layer 2 ecosystem more.

Development Outlook of Well-known Layer2 Projects in 2024

The Dencun upgrade will benefit all Layer2 projects, whether they are Layer2 developed using Optimistic Rollup or ZK Rollup.

As mentioned in the blog post The Three Transitions by the co-founder of Ethereum: Ethereum needs to go through three major technical transitions: the transition to Layer 2, where everyone turns to Rollup; the transition to wallet security, where everyone uses smart contract wallets; and the transition to privacy, ensuring that privacy-preserving fund transfers are feasible.

After the Dencun upgrade is completed, what developments of these popular Layer2 networks can we continue to pay close attention to?

Aribitrum and Optimism: These are the two Layer2 networks with the largest number of users and the largest cumulative market value (TVL) in the current blockchain world. They have sufficient first-mover advantages. After the upgrade, Dencun may become the preferred network for new users and new funds to enter the Layer2 field.

Polygon zkEVM: Polygon zkEVM, which has turned from the public chain market to embrace Ethereum Layer2, has a natural market driving force compared to other Layer2 projects. According to the news on February 26, 2024, the 10-day time lock for the Polygon zkEVM mainnet Beta test version upgrade has been launched, and the transaction information including the Elderberry proposal and the upgrade contract has been published on GitHub and Etherscan. It is expected to be launched on the mainnet around early March 2024.

Metis: It was launched in 2021 and developed using Optimistic Rollup. In 2024, Metis will be upgraded to a Hybrid Rollup that combines the Optimistic Rollup architecture with zero-knowledge proof (ZK). Currently, Metis's sorter has been launched on the Holesky testnet and has been open to community testing on January 3, 2024. It is also planned to launch a liquid staking application to allow these community users to participate in node staking and obtain corresponding benefits.

Base: The development focus of Base in 2024 is to accelerate decentralization, while improving network availability, reducing network fees across the board, and bringing existing and new users, assets, and products of Coinbase to the chain. In the 2024 roadmap, Base mentioned that in order to enhance interoperability, it is necessary to achieve communication between OP chains, continue to refine and improve the chain rule and optimistic RPGF, and strive to establish an innovative and dynamic decentralized chain economic ecology.

Linea: Linea, developed based on ZK Rollup and launched in July 2023, has a lower cumulative market value (TVL) than other Layer2 projects, but due to its strong development team background, rapidly growing number of transactions after launch, and sufficient funds, many industry insiders believe that it may become one of the largest airdrop projects in 2024.