In-Depth Analysis of the Post-Upgrade Era in Cancun: Data and Investment Perspectives

Introduction

Since its official launch on July 30, 2015, Ethereum has gone through 12 upgrades, each of which has garnered significant attention.

The main goal of this Ethereum Cancun-Deneb upgrade ( Dencun upgrade ) is to enhance the scalability and modularity of Layer 2 networks, improve the security features of the Ethereum network, and enhance overall usability.

1. What is the Dencun Upgrade

1.1 Upgrade Introduction

1.1.1 Origin of the Name

The Ethereum underlying structure is composed of two parts: the execution layer and the consensus layer, each with different naming conventions.

The naming convention for execution layer upgrades has been renamed since 2021, based on the cities where the Devcon( Ethereum Developer Conference ) is held. For example, Berlin upgrade, London upgrade, Shanghai upgrade, etc.

The naming convention for the consensus layer upgrade has been based on celestial names in alphabetical order since the launch of the Beacon Chain. For example, Vega ( Altair ), Betelgeuse ( Bellatrix ), and Capella (, etc.

Each upgrade of Ethereum is named using a combination of two different upgrade names to form an overall upgrade name. Since this Devcon is held in Cancun, Mexico, and the consensus layer upgrade is named Deneb, this Ethereum upgrade is abbreviated as the Dencun upgrade.

)# 1.1.2 Upgrade Background

The background of the Dencun upgrade is based on a long-term plan for Ethereum development, and the other core aspect is to enhance the Ethereum experience, ultimately achieving a permissionless, decentralized, censorship-resistant, and open-source ecosystem.

On one hand, according to the roadmap announced by Ethereum founder Vitalik Buterin on December 31, 2023, the Dencun upgrade corresponds to the portion of The Surge, which prioritizes user experience. For example, it aims to improve transaction speed and reduce Gas fees, with the goal of enhancing network efficiency, lowering transaction costs, and laying a solid foundation for future development.

On the other hand, from the article "Make Ethereum Cypherpunk Again" published by Vitalik Buterin on December 28, 2023, it is known that Vitalik believes one of the core reasons currently limiting blockchain to asset speculation is the rising transaction fees, which has made Degen Gamblers the mainstream group, hindering the realization of the application value of blockchain. Therefore, transaction fees must be reduced.

1.1.3 Upgrade Time

According to the Ethereum plan, the upgrade time and activation information are:

Execution Layer ( EL ):

• Block Height: 19426944
• Estimated time: March 13, 2024

Consensus Layer ### CL (:

• Epoch:269568
• Estimated time: March 13, 2024

)# 1.1.4 Content Involved

The Ethereum Cancun-Deneb upgrade has made a series of improvements to both the execution layer and the consensus layer. Cancun ( Cancun ) has improved the execution layer ### EL (, while Deneb ) Deneb ( has enhanced the consensus layer ) CL (, incorporating a number of Ethereum Improvement Proposals (EIPs) that are crucial for the development of the Ethereum network ). There are a total of 9 EIPs, and we will introduce the key EIPs in the following sections.

( Key points of the Dencun upgrade 1.2

)# 1.2.1 EIP-4844 Shard Blob Transactions ( Proto-Danksharding )

EIP-4844 is the biggest highlight of this upgrade, aimed at reducing transaction fees, increasing transaction throughput ### TPS ###, and enhancing scalability. Essentially, it is a transitional upgrade to prepare for the future, to achieve complete Danksharding (, which is the final part of the "Serenity" phase upgrade for Ethereum ). Proto-Danksharding lays the groundwork for Danksharding.

Data availability on the Ethereum main chain can be understood as the data generated in contract transaction calls, represented by Calldata(, while the data returned from Layer 2 to Layer 1 is stored in Calldata. Additionally, for security purposes, each execution step of Calldata requires Gas, which leads to a significant Gas expense. However, once the transaction data in Calldata is verified, it actually has little use, as long-term data can be downloaded and verified, and there is no need to transmit it to the execution layer. Taking the average transaction fee history of Layer2-OP chain as an example, it can be seen that nearly 80% of the fees come from L1 data fees.

![In-depth Analysis of the Post-Cancun Upgrade Era: Data and Investment Perspectives])https://img-cdn.gateio.im/webp-social/moments-a9dce2caf2553b6bfcc981c8720f0291.webp(

Therefore, EIP-4844 introduces a new data storage structure - Blob, specifically designed for storing transaction data submitted from L2 to L1. After its introduction, L2 transaction data is directly submitted to the Blob for storage, allowing consensus nodes to fully download it and delete it after a brief delay, thus reducing unnecessary storage burdens. This means that the introduction of Blob will greatly reduce L2 transaction fees. At the same time, Blob also effectively expands the block space for L2, and the transaction throughput of L2 will also significantly increase.

)# 1.2.2 EIP-1153 Transient Storage Opcode

The main purpose of EIP-1153 is to save storage space and storage costs. Transient storage is discarded after each transaction, making temporary storage cheaper as it does not require disk access.

EIP-1153 is more friendly to Dapp developers, introducing new opcodes TSTORE and TLOAD in the EVM, with a gas cost of about 100 Gas per call, which is 95% cheaper than traditional storage calls (SLOAD and SSTORE). At the same time, once the complete transaction execution ends, that portion of storage will be cleared, thus reducing storage costs and gas consumption, which may allow future DeFi contracts to save more gas.

(# 1.2.3 EIP-4788 Beacon Block Root in EVM

EIP-4788 will enable communication between the EVM) Ethereum Virtual Machine### and the Beacon Chain(. This functionality supports various use cases that can improve staking pools), restaking constructions###, smart contract bridges(, MEV, and more.

Previously, EVM could not directly access Beacon's data and state, and could only capture the state through an externally trusted oracle. Therefore, it was proposed to place a parent beacon block root )parent_beacon_block_root( in each EVM block, so that when there is an update in Beacon, EVM can immediately obtain accurate information.

The parent beacon block root will be stored in a circular buffer, retained for about 1 day. Once a new parent beacon block root enters and the buffer capacity reaches a critical value, the oldest parent beacon block root will be overwritten, thus achieving efficient and limited consensus storage. In this way, communication is realized in a trust-minimized manner, while also eliminating external oracle failures and malicious risks, thereby increasing security.

)# 1.2.4 EIP-5656 MCOPY - Memory Copy Instruction

EIP-5656 optimizes the cost of copying memory regions by introducing a new EVM instruction MCOPY, thereby improving the efficiency of data movement within the EVM.

Memory copying is a fundamental operation, but implementing it on the EVM incurs overhead. Taking the example of copying 256 bytes of memory data, developers can significantly reduce the cost from the previous 96 Gas( using MLOAD and MSTORE) to 27 Gas with the MCOPY opcode. It is expected that in the future, most developers will use MCOPY instead of MSTORE/MLOAD, and more efficient Gas contracts will ultimately benefit end users.

At the same time, MCOPY fills the gap in the current methods of copying memory in EVM.

(# 1.2.5 EIP-6780 SELFDESTRUCT only in the same transaction

EIP-6780 restricts the opcode SELFDESTRUCT functionality, with the new feature only sending all funds in the account to the target, but not affecting the code, storage, and other information, while also preparing for the subsequent Verkle tree upgrade.

Before EIP-6780, if a contract creation referenced the SELFDESTRUCT opcode, funds could be sent to the target, but the code, storage, and other information would be deleted. However, this functionality posed certain dangers and unexpected consequences. After EIP-6780, all of this will not be affected, allowing developers to better manage projects, thereby achieving a more stable and predictable blockchain.

2. Data Layer Impact After Upgrade

) 2.1 Impact of Gas Fees

The most crucial aspect of this upgrade, and the one that everyone is most concerned about, is undoubtedly the change in Gas fees. With the introduction of EIP-4844, the most significant beneficiaries are Layer 2 solutions, where the reduction in Gas fees is very evident, resulting in an improved user experience. This basically aligns with the expectation that Layer 2 transaction fees would decrease by 90% prior to the upgrade.

For Layer1( Ethereum itself ), the Gas fees have decreased after the upgrade, but not significantly, and users actually experience no change in practical use.

![In-depth Analysis of the Era After the Cancun Upgrade: Data and Investment Perspective]###https://img-cdn.gateio.im/webp-social/moments-8a85407cddc7f38044d30d819f36fb26.webp(

) 2.2 Trading Volume Impact

In addition to reducing Gas, the upgrade also aims to increase throughput, which is a key focus in Ethereum's scalability development plan.

After the upgrade was completed, the trading volume of Base surged first and broke through the previous bottleneck, increasing from 500,000 to 2 million, indicating that EIP-4844 had a direct impact on it, benefiting the most.

![In-depth analysis of the Cancun upgrade era: data and investment perspective]###https://img-cdn.gateio.im/webp-social/moments-f17426dc632c755745ea71b3d5f3c2aa.webp###

( 2.3 TPS impact

The optimization of TPS)'s transactions per second ( means that developers have greater flexibility when building and deploying dApps, which is expected to give rise to more complex, data-intensive applications, thereby attracting a broader user base.

After the upgrade is completed, the TPS of each Layer 2 has basically increased, but it does not exceed 30 transactions per second at most.

![In-depth Analysis of the Post-Cancun Upgrade Era: Data and Investment Perspectives])https://img-cdn.gateio.im/webp-social/moments-1ef73967bc5a186cd4e830db27b31a09.webp(

Low TPS is a common phenomenon in the current Web3 industry, differentiating it from the high TPS characteristics of the traditional Web2 industry. The maximum TPS of Layer 2 has not exceeded 500, but from the perspective of industry development, this upgrade is also laying the foundation for the future, while also responding to the expectations for Ethereum's development - achieving 100,000+ TPS.

) 2.4 Blob Usage

The overall decrease in Layer 2 transaction fees is mainly due to the introduction of Blob types. The more Blobs that are pending in transactions, the greater the overall throughput, which also lays the foundation for future Ethereum upgrades.

Initially, it was expected that if an average target of 3 Blobs per block is achieved, the throughput of L2 will see an almost 2-fold increase. If the target of 64 Blobs per block is finally achieved, the throughput of L2 will see an almost 40-fold increase. This upgrade has set the maximum limit to 6 Blobs.

As of now, Blob has started to be used in trading, but the overall usage rate is not high. The peak occurred immediately after the upgrade was completed, and it has gradually declined since then, not yet reaching the estimated average target of 3 Blobs.

![In-depth Analysis of the Post-Upgrade Era in Cancun: Data and Investment Perspective]###https://img-cdn.gateio.im/webp-social/moments-c70c8d5f9e1e0ca190cd9703bb808f41.webp(

However, the introduction of Blob types has significantly improved the data costs of Layer 2 on Layer 1. From the example of the OP chain mentioned above, it can be intuitively felt that the data costs using L1 in the average transaction fees of Layer 2 have been significantly reduced, almost eliminated. This also suggests from another perspective that the profit margin of Layer 2 may increase.

![In-depth Analysis of the Post-Cancun Upgrade Era: A Data and Investment Perspective])https://img-cdn.gateio.im/webp-social/moments-d5a8582b17a29dc3083296b37e9ec9f3.webp###

The profit model of L2 is relatively simple and clear, which can be summarized as: on-chain profit = L2 transaction fees - L1 payment costs; taking the OP chain as an example, although the upgrade has simultaneously reduced L2 transaction fees and L1 payment costs, the reduction in both is not even in the same order of magnitude due to the increase in transaction volume and user base. Transaction fees have decreased from hundreds of thousands to tens of thousands, while payment costs have dropped from hundreds of thousands to less than 1k, and on-chain profits have also increased after the upgrade.

( 2.5 price impact

For this upgrade, in addition to being most concerned about whether the on-chain user experience has improved, users are also very concerned about the prices of the native tokens of each L2.