In-Depth Analysis of the Dencun Upgrade Era: Data and Investment Perspectives

Preface

Since Ethereum officially launched on July 30, 2015, it has undergone 12 upgrades, each of which has attracted significant attention.

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

1. What is the Dencun upgrade?

1.1 Upgrade Introduction

1.1.1 Origin of the Name

The Ethereum underlying structure consists of two parts, namely the execution layer and the consensus layer, each with different naming conventions.

The naming convention for execution layer upgrades has been based on the cities hosting the Devcon( Ethereum Developer Conference since 2021. For example, upgrades like Berlin, London, Shanghai, etc.

The naming rule 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 by combining two different upgrade names to form an overall upgrade name. Since this Devcon takes place in Cancun, Mexico, and the consensus layer upgrade is named Deneb, this Ethereum upgrade is referred to as the Dencun upgrade.

(## 1.1.2 Upgrade Background

The background of the Dencun upgrade is a long-term plan based on the development of Ethereum, 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 released by Ethereum founder Vitalik Buterin on December 31, 2023, the Dencun upgrade corresponds to the part of The Surge, which prioritizes user experience first, for example, improving transaction speed and reducing Gas fees, with the aim 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 can be understood that Vitalik believes one of the core reasons currently leading to blockchain being increasingly limited to asset speculation is the rising transaction fees. This has made Degen Gamblers the mainstream group, which is not conducive to realizing the practical application value of blockchain, so transaction fees must be reduced.

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

(## 1.1.3 Upgrade Time

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

• Execution Layer ) Cancun (: March 13, 2024
• Consensus Layer ) Deneb ###: The 8626176th Beacon Chain epoch

(## 1.1.4 Content Involved

Ethereum's Cancun-Deneb upgrade makes a series of improvements to both the execution layer and the consensus layer. Cancun) enhances the execution layer( EL), while Deneb### strengthens the consensus layer( CL), incorporating a series of Ethereum Improvement Proposals( 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 subsequent discussions.

)# Key points of the Dencun upgrade 1.2

From the above understanding, we know that the Dencun upgrade mainly aims to improve Ethereum, and the specific implementation plan revolves around a series of EIPs. The following will analyze the core EIPs involved.

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

EIP-4844 is the highlight of this upgrade, aiming to reduce transaction fees, increase transaction throughput ) TPS (, and enhance scalability. Essentially, it is a transitional upgrade to prepare for the future, achieving the final part of fully implementing Danksharding ) in Ethereum's "Serenity" phase upgrade. Proto-Danksharding lays the groundwork for Danksharding.

The data availability provided on the Ethereum main chain can be understood as Calldata###, which is the data generated during contract transaction calls###. The data sent back from Layer 2 to Layer 1 is stored in Calldata. Additionally, for security, each execution step of Calldata requires Gas, which results in a higher Gas cost. However, once the transaction data in Calldata is verified, it is actually of little use; long-term data can also be downloaded for verification, and it may not even need to be sent to the execution layer. For example, looking at the historical composition of average transaction fees on the Layer2-OP chain, it can be seen that nearly 80% of the fees come from L1 data fees.

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, available for consensus nodes to download completely, and can be deleted after a brief delay, reducing unnecessary storage burdens. This means that the introduction of Blob will greatly reduce L2 transaction fees. At the same time, Blob effectively expands the block space for L2, and the transaction throughput of L2 will also be significantly improved.

(## 1.2.2 EIP-1153 Transient Storage Opcode

The main purpose of EIP-1153 is to save storage space and 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 for calling these opcodes, which is 95% cheaper than traditional storage calls )SLOAD and SSTORE(. Additionally, once the complete transaction execution is finished, this part of the storage will be cleared, thereby reducing storage costs and Gas consumption, for example, it may allow new DeFi contracts to save more Gas in the future.

)## 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 feature supports various use cases, improving staking pools), restaking constructions###, smart contract bridges(, MEV, etc.

Previously, the EVM could not directly access the data and state of the Beacon and could only capture the state through external trusted oracles. Therefore, it was proposed to place a parent beacon block root )parent_beacon_block_root### in each EVM block, so that when the Beacon is updated, the 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 achieved in a trust-minimized manner, eliminating external oracle failures and malicious risks, and 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 copying of 256-byte memory data as an example, developers can significantly reduce the cost from the previous 96 Gas) using MLOAD and MSTORE( to 27 Gas through 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 method of copying memory in EVM.

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

EIP-6780 restricts the opcode SELFDESTRUCT function, the new feature merely sends all funds in the account to the target, but does not affect the code, storage, and other information, and also prepares for the subsequent Verkle tree upgrade.

Before EIP-6780, if the SELFDESTRUCT opcode was referenced in contract creation, funds could be sent to the target, but the code, storage, and other information would be deleted. However, this functionality could pose certain dangers and unexpected consequences. After EIP-6780, all of this will no longer be affected, allowing developers to better manage projects, thereby achieving a more stable and predictable blockchain.

( 2. Impact on data layer after the 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 noticeable, enhancing user experience. It basically aligns with the expectation of a 90% reduction in Layer 2 transaction fees prior to the upgrade.

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

(# 2.2 Impact of Trading Volume

In addition to reducing Gas, the upgrade also aims to improve throughput, which is a key focus in Ethereum's scaling development plans.

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, with the benefits being the most apparent.

![In-depth Analysis of the Post-Upgrade Era in Cancun: Data and Investment Perspectives])https://img-cdn.gateio.im/webp-social/moments-f17426dc632c755745ea71b3d5f3c2aa.webp###

(# 2.3 TPS impact

TPS) optimization of transactions per second ### means that developers have greater flexibility in building and deploying dApps, which is expected to foster more complex and data-intensive applications, thereby attracting a broader user base.

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

Low TPS is a common phenomenon in the current Web3 industry, contrasting with the high TPS characteristics of the traditional Web2 industry. The highest 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 responding to the expectations of Ethereum's development—reaching over 100,000 TPS.

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

(# 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 included in transactions, the greater the overall throughput, which also lays the foundation for future Ethereum upgrades.

Initially, it was estimated that if an average target of 3 Blobs per block is achieved, the throughput of L2 will increase by nearly 2 times. If a target of 64 Blobs per block is ultimately achieved, the throughput of L2 will increase by nearly 40 times. This upgrade has set the maximum limit to 6 Blobs.

As of the current situation, Blob has begun to be used in transactions, but the overall usage rate is not high. The peak also appeared right after the upgrade was completed, and it has gradually declined since then, not yet reaching the estimated average target of 3 Blobs.

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 significantly reduced, almost eliminated, which also suggests from another perspective that the profit margins of Layer 2 may improve.

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

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

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

(# Price impact of 2.5

For this upgrade, users are primarily concerned about whether the on-chain user experience has improved, and secondly, they are most concerned about the prices of the native tokens of each L2.