Will Ethereum L2's gas fee really drop by more than 10 times after the Cancun upgrade?

There is a consensus in the market today: after the Cancun upgrade, the average gas fee of Ethereum L2 will be reduced by 10 times or even more.

After the deployment of the core protocol EIP4844 of the Cancun upgrade, the Ethereum mainnet will add three new Blob spaces dedicated to storing L2 transactions and state data, and these Blobs have independent Gas Fee markets. It is expected that the maximum size of state data stored in one Blob space is approximately equal to one mainnet block, which is ~1.77M.

Currently, the daily Gas consumption of the Ethereum mainnet is 107.9b, and the Gas consumption of its Rollup L2 accounts for ~10%.

According to the supply and demand curve in economics:

Price = Total Demand / Total Supply

Assuming that the total Gas demand of Rollup L2 remains unchanged after the Cancun upgrade, and the block space that Ethereum can sell to L2 increases from ~10% of the current 1 block to 3 full Blob blocks, which is equivalent to a 30-fold expansion of the total supply of block space, then the Gas price will be reduced to 1/30 of the original.

However, this conclusion is not reliable because it presupposes too many linear relationships and abstracts too many detailed factors that should be taken into account in the calculation and consideration, especially the impact of competition and game strategies among Rollup L2s for Blob space on Gas prices.

The gas fee consumption of Rollup L2 is mainly composed of two parts: data availability preservation fee (state data preservation fee) + data availability verification fee. Among them, the data availability preservation fee currently accounts for up to ~90%.

After the Cancun upgrade, for Rollup L2s, the three newly added Blob blocks are equivalent to three newly added commons. According to Coase's theory of the commons, in a market environment where Ethereum Blob space is completely free to compete, it is highly likely that the current leading Rollup L2s will abuse Blob space. This can ensure their market position on the one hand, and squeeze the living space of competitors on the other.

The figure below shows the profit statistics of 5 Rollup L2s for one year. It can be found that their monthly profit scale shows obvious seasonal changes, but there is no obvious overall growth trend.

In such an involutionary market with a ceiling limit, Rollup L2s are in a highly tense zero-sum game, competing fiercely for developers, funds, users, and Dapps. After the Cancun upgrade, they are now competing fiercely for three more Blob spaces.

In a market situation where "there is only so much meat, if others eat one more bite, you will eat one less bite", it is difficult for Rollup L2s to achieve the ideal Pareto optimal situation.

So how will the leading Rollup L2s abuse Blob space?

I personally guess that the leading Rollup L2 will modify the batch frequency of the sequencer, shortening the current batch frequency from once every few minutes to once every 12 seconds, in order to keep pace with the block speed of the Ethereum main network. This will not only improve the rapid confirmation of transactions on their own L2, but also occupy more Blob space to suppress competitors.

Under this competitive strategy, the verification fee and Batch fee in the Gas fee consumption structure of Rollup L2 will surge, which will limit the positive impact of the newly added Blob space on the reduction of L2 Gas fees.

As shown in the figure above, the positive impact of increasing Blob space on reducing L2 Gas fees will decrease marginally, and will almost become ineffective after reaching a certain threshold.

Based on the above analysis, I personally believe that the Gas fee of Ethereum L2 will decrease after the Cancun upgrade, but the decline will be less than market expectations.