Search Extension

API/RSS

Social

MT Capital: Cancun's upgrade injects new vitality into the Ethereum ecosystem.

MT Capital

24-01-12 09:00

Read this article in 48 Minutes

AI summary

View the summary

Original Title: "MT Capital: Cancun Upgrades Inject New Vitality into Ethereum Ecosystem"

Original Source: Severin, Ian Wu, MT Capital

TL;DR

One of the core upgrades of Dencun is the introduction of a new data structure called "blob" through EIP-4844, which stores transaction data submitted by L2 to Ethereum. This significantly reduces the transaction cost of Ethereum L2 and improves the transaction throughput of L2, which is beneficial to the L2 ecosystem.

·Dencun has also upgraded and introduced a new instant storage opcode through EIP-1153, which supports smart contracts to read and call temporary storage data, thus reducing Ethereum's storage costs and gas consumption, improving the scalability of the main network, and benefiting the main network's ecological applications.

·According to the Shadowfork test report released on December 19th and the 178th Ethereum core developer execution meeting held on January 4th, the current Ethereum Dencun upgrade test is going well, and the Dencun upgrade of the mainnet is expected to be completed by the end of February.

·Dencun's upgrade will promote the prosperity of the L2 ecosystem and drive demand for infrastructure tracks such as decentralized storage, DA, and RaaS. For the application layer, tracks such as Perps, LSD, ReStaking, and FOCG will also benefit from Dencun's upgrade.

Cancun Upgrade

Cancun Upgrade Background

On December 28, 2023, Vitalik published an article titled "Make Ethereum Cypherpunk Again", discussing his vision for the cryptocurrency industry. Vitalik emphasized that one of the core reasons why blockchain is currently limited to asset speculation is the rise in transaction fees. The high cost of network transaction fees has caused people to shift from being users of blockchain networks to speculators. In order to realize the practical value of blockchain, the transaction fees of blockchain networks must be reduced by an order of magnitude. Even though the emergence of L2 has already reduced network fees compared to the Ethereum mainnet, this is still far from enough.

Similarly, the prosperity of the Solana ecosystem network at the end of 2023 is closely related to its extremely low network transaction fees. Compared to Ethereum's L2 Gas cost of up to $0.5, Solana's Gas fee is as low as 0.0005, which can be almost negligible. The extremely low network Gas promotes the prosperous Meme hype, DeFi application interaction, and DePIN application migration on Solana. In particular, cNFT on Solana can reduce the minting cost by 1000 times compared to NFT on Ethereum, which has also brought prosperity to some DePIN projects and creator economy projects with NFT as the economic core. Therefore, low network transaction fees have a significant promoting effect on network transaction activities and the prosperity of ecological applications.

High Gas Fees on Ethereum L2

source: <https://l2fees.info/>

Of course, Ethereum has long been aware of this issue. In Ethereum's upgrade roadmap, the next upgrade after the merge, "The Surge," aims to increase Ethereum's TPS and reduce transaction fees in the Ethereum ecosystem. The upcoming Dencun upgrade for Ethereum is part of "The Surge," which aims to further increase Ethereum's transaction throughput and scalability through the introduction of Proto-Danksharding.

source：https://twitter.com/milesdeutscher/status/1550315295402668032

One of the core upgrades of Dencun is the introduction of the Proto-Danksharding module. Proto-Danksharding is also designed to prepare for Ethereum's ultimate shard expansion. The earliest Ethereum expansion plan was to divide Ethereum into different shards, distribute the computing load of the main network to each shard, and each independent shard would save a subset of transaction data that occurred on Ethereum and process transactions in parallel, thereby increasing Ethereum's TPS. The initial ETH2.0 plan eventually divided the main network into 64 shards to achieve 100,000+ TPS.

source：Crypto.com Research

However, the development complexity of sharding itself is high, and the development progress is slow. In contrast, the Rollup scaling solution, which takes over the transaction execution of Ethereum to the second layer chain and relies on Ethereum for settlement, consensus, and data availability, has developed rapidly at an extremely fast pace, achieving lower transaction costs and higher throughput, and to some extent has met the expansion needs of Ethereum. This has led Ethereum to gradually abandon the sharding-based scaling path and instead adopt data sharding for Rollup.

Compared to the traditional way of sharding and scaling, Danksharding's scaling implementation path is relatively simpler. One of the core contents of the upcoming Dencun upgrade is the introduction of Proto-Danksharding, which first introduces blobs into the block space to optimize data availability costs and improve the scalability of L2. The Proto-Danksharding introduced by Dencun will also become the first step in Ethereum's comprehensive scaling, laying the foundation for further implementation of complete Danksharing, introducing block proposers and builders separation, and achieving data availability sampling.

Kankun's upgraded kernel

Proto-Danksharding

Proto-Danksharding, also known as EIP-4844, is the most critical module in the Dencun upgrade. The name Proto-Danksharding comes from the two researchers who proposed this scaling solution: Proto Lambda and Dankrad Feist. The upgrade is named after a part of each of their names. Proto-Danksharding reduces the cost of L2 and optimizes L2 performance by introducing a new data storage structure called blob.

Transaction type carrying blob:

Previously, all transactions on Ethereum L2 were stored in L1's Calldata. However, the space available on Calldata is relatively limited, and all data on Calldata is processed by Ethereum nodes and permanently stored on the chain, resulting in high data availability costs. In theory, L2 transaction data does not need to be permanently stored on expensive Ethereum L1, and only needs to be stored for a certain period of time to meet verification requirements such as fraud proof. In other words, Ethereum L2's transaction data has lacked suitable storage space in the past. From a data perspective, 80% of L2's transaction costs and gas fees come from the expensive data storage costs on Calldata.

source： https://dune.com/optimismfnd/optimism-l1-batch-submission-fees-security-costs

Proto-Danksharing will introduce a new data storage structure called "blob" in the Ethereum blockchain. Blob will be specifically used to store transaction data submitted from L2 to L1.

source：https://hackmd.io/@luozhu/SyleCcpti

Each blob introduced by Proto-Danksharing has a size of 128 KB, and each Ethereum block is planned to contain 3-6 blobs (0.375 MB - 0.75 MB), gradually expanding to 64 in the future.

source：https://a16zcrypto.com/posts/article/an-overview-of-danksharding-and-a-proposal-for-improvement-of-das/

Compared to Ethereum, currently each block can only accommodate data size of less than 200KB. With the introduction of blob, the amount of data that Ethereum blocks can accommodate will be significantly increased.

source：https://etherscan.io/chart/blocksize

After introducing blob, the transaction data submitted by L2 will no longer need to compete for storage space with Calldata, but will be directly submitted to blob for storage. In addition, the data in blob will be automatically deleted after about a month, further reducing unnecessary storage burden. The introduction of blob means that the transaction fees of L2 will be greatly reduced (reduced by about 90%), and because blob is equivalent to an additional block space for L2, the transaction throughput that L2 can submit at the same time will also be significantly improved. If Dencun successfully achieves an average target of 3 blobs per block after upgrading, the throughput of L2 will be nearly doubled. If the ultimate goal of 64 blobs per block is achieved, the throughput of L2 will be nearly 40 times higher.

Additionally, blob has its own independent fee market. Proto-Danksharing also introduces a new type of gas called blob gas. The Blob Gas fee mechanism in EIP-4844 is rooted in the previously introduced EIP-1559 mechanism, where the storage space of blob will be auctioned off based on its own fee market. This means that the fee market of blob is completely independent of the demand for block space, thereby increasing the flexibility and efficiency of network resource allocation. The data storage cost in blob is about one data-gas per byte, while the pricing of Calldata is 16 data-gas per byte. In comparison, the data storage cost of blob is significantly lower than that of Calldata.

source：https://foresightnews.pro/article/detail/38853

After introducing blob, the operation process of L1 and L2 block networks will also change. First, L2 needs to publish its commitment to transaction data on the chain. Then, L2 needs to submit the actual transaction data to the blob. At the same time, nodes can check whether the commitment is valid and verify the data. Consensus layer nodes prove that they have seen the data and that the data has been propagated on the network. After about a month, nodes will delete the data in the blob, which can be stored in other DAs.

source：OP in Paris: OP Lab's Protolambda walks us through EIP-4844

KZG Commitment

EIP-4844 also introduces the KZG (Kate-Zaverucha-Goldberg) commitment scheme as part of the blob verification and proof generation process. The KZG commitment is a type of polynomial commitment scheme that allows a submitter to commit to a polynomial using a short string, and enables a verifier to confirm the declared commitment using the short string. In simple terms, KZG can simplify the verification of large amounts of data into the verification of small cryptographic commitments.

Data blocks can be represented as polynomials and used in conjunction with polynomial commitment schemes to submit data. By using polynomial commitment schemes to generate commitments to the data, specific properties of the data blob can be effectively verified without having to fully read its contents. The implementation of KZG commitments also paves the way for implementing Data Availability Sampling (DAS) in Danksharding. With DAS, validators can verify the accuracy and availability of data blobs without having to download the entire blob, thereby improving efficiency and scalability.

Other EIP upgrades:

Aside from EIP-4844, the Dencun upgrade also includes four key EIP improvement proposals.

source：https://notes.ethereum.org/@ethpandaops/dencun-gsf-1-analysis

L2

source：https://www.techflowpost.com/article/detail_14912.html

For all Ethereum-based L2 solutions, the upgrade of Dencun is a positive development. However, under this general positive trend, we will focus on which L2 projects have more unique competitive advantages and can benefit more from the upgrade of Dencun.

L2 Ecology

Arbitrum

The current Ethereum L2 leaders are still Arbitrum and Optimism, but their competitive advantages and segmented competition directions are slightly different. Arbitrum is more advanced in the diversity of protocols based on Arbitrum One, while Optimism is more advanced in the diversity of cross-chain ecosystems based on OP Stack.

Arbitrum is currently the L2 protocol with the most abundant variety of all protocol types. According to incomplete data from DeFiLlama, there are approximately 520 protocols on Arbitrum, far exceeding the second-ranked Optimism with 216. According to L2beat data, Arbitrum's TVL is currently about 11.26B, accounting for nearly half of the TVL of Ethereum Rollup.

source：https://l2beat.com/scaling/summary

Additionally, network transaction activity on Arbitrum is also very prosperous. Looking at the network transaction volume rankings in the past 30 days, Arbitrum has approximately 36M in transaction volume, ranking second only to zkSync, which has not yet launched but still has a lot of activity. If we exclude L2s with airdrop interactions, and only compare the already launched Arbitrum with Optimism, Arbitrum also leads with a network transaction volume three times that of Optimism.

source：https://l2beat.com/scaling/summary

Overall, it is clear that Arbitrum, which has the highest network transaction volume, can benefit from the reduced transaction fees and the optimization of TPS. This is also beneficial for the prosperity of protocol ecosystems such as GMX and GNS that have higher performance requirements on Arbitrum. From the perspective of network fundamentals, Arbitrum is undoubtedly one of the biggest beneficiaries of Dencun's upgrade. In addition, Arbitrum is also actively promoting Arbitrum Orbit and Stylus language, supporting developers to use Orbit to build Rollup based on both EVM and WASM VM, and creating network effects based on Arbitrum.

Optimism

Unlike Arbitrum, Optimism's competition focuses more on the Optimism SuperChain network built on the OP Stack. The value of Optimism depends more on the network value of Optimism SuperChain.

Since the release of OP Stack, a large number of projects such as Base, Lyra, opBNB, Redstone, Zora, Mode, Debank, and many others have built their L2 based on OP Stack. The upgrade of OP Stack Bedrock version has further optimized transaction costs, transaction processing within blocks, node performance, making it more attractive to build L2 based on OP Stack. According to the plan of Optimism SuperChain, all Rollups using OP Stack will be integrated into a standardized OP chain. These chains can communicate directly through cross-chain messaging protocols, share a common Ethereum cross-chain bridge and sequencer network.

If Dencun's upgrade can benefit all L2s at the same time, then the upgrade premium enjoyed by Optimism is the combination of network value brought by all Optimism's ecosystem. If Dencun's upgrade can give birth to more new L2s, then the upgrade premium enjoyed by Optimism is more L2 chains that may adopt OP Stack, and Optimism will also be closer to the ultimate vision of Optimism SuperChain ecosystem.

source：https://app.optimism.io/superchain

Sequencer Decentralized

Metis

The competition between Arbitrum and Optimism is more about protocol, network activity, and ecological value. However, another urgent problem that needs to be solved is the decentralization of L2 Sequencer, which has become the elephant in the room. With the upgrade of Dencun bringing more L2 bursts, the problems caused by centralized sequencers such as single point of failure, malicious arbitrage, capturing MEV value, and censoring user transaction space may become increasingly serious.

Metis has taken the lead in this regard and may become the first Ethereum L2 to run a decentralized PoS sorter.

Metis has broken the centralized pattern of sorters and supports nodes that stake at least 20,000 METIS tokens to enter the sorter pool as sorter operators. Sorters in the sorter pool will be responsible for determining the order of transactions, and at least 2/3 of sorter signatures are required to upload data to the L1 mainnet. In addition, to further prevent sorter misconduct, Metis has introduced the role of validators to sample and investigate blocks to ensure that sorters correctly sort transaction orders.

Metis chooses to actively give up profits and voluntarily transfer the most profitable sorter to the staking nodes. With the emergence of more staking protocols for sorters in the future, we can also foresee that a wider range of users will be able to participate in sorter staking and share sorter profits. Metis' innovation in sorter decentralization and empowerment of the METIS token will drive up the price of the METIS token, the staking rate of the METIS token, and the inflow of funds into the Metis network. As the METIS network ecosystem thrives and sorter income grows, more and more METIS will be staked to sorter nodes, reducing the circulation of METIS in the market and increasing demand for METIS, thereby promoting a positive cycle of TVL, ecosystem, and coin price for Metis and the METIS token.

The competition of decentralized sorters may become the core theme of L2 competition after the upgrade of Dencun.

source：https://docs.metis.io/dev/decentralized-sequencer/overview

Token Empowerment

Another key factor that determines the price of L2 tokens in the encryption industry is the empowerment of L2 tokens. Currently, almost all Ethereum L2s use ETH as a gas token, and their L2 tokens have no other use except for governance. Without a stable value consumption scenario, the tokens in users' hands can become disposable at any time. Tokens with actual empowerment, such as METIS, are more likely to move towards a positive spiral of L2 fundamentals and coin prices.

Except for the METIS token mentioned earlier, which can be used as a decentralized sorter staking token and for sharing sorter income, another case worth learning from is ZKF. The ZKF token of ZkFair can not only be used as a gas token, but also staked to share the gas income of the ZkFair network. Similar to METIS, the token's staking and dividend features make it easier to promote the spiral rise of ZKF market price. In addition, Arbitrum Orbit has also added support for custom gas tokens.

As mentioned earlier, all Rollups that share the OP Stack will share a common sequencer network. Imagine if Optimism also borrowed from Metis and introduced staking OP as a module for the decentralized sequencer of the OP Stack, how much market demand and buying power this would bring to OP. The rise in token price would also attract more funds and users to the applications within the ecosystem, promoting its prosperity. The measures taken by Ethereum L2 in token empowerment after a bumpy upgrade are also one of the core issues that need to be focused on.

Other

As mentioned earlier, the upgrade of Dencun will bring about a reduction in transaction fees and an increase in L2 TPS, which will benefit every Ethereum L2. In addition to the projects discussed earlier, there are also other projects whose performance is worth looking forward to.

Base can be considered one of the best performing L2s in 2023, and its strong relationship with Coinbase allows it to attract a large number of users and funds from Coinbase, making it the third-ranked Ethereum L2 in terms of TVL. Base's rise is inseparable from the hype of popular projects such as Friend.tech and FrenPet on Base. One of the major characteristics of these projects is high interaction frequency and low single interaction income. Moreover, they have relatively large user bases and higher performance requirements. The benefits brought by Dencun's upgrade just happen to meet the needs and characteristics of such projects. We may see more social and gaming lightweight applications appearing on Base, bringing in more users and funds and stimulating the ecological vitality of Base.

In addition, there are more L2s such as Mantle and Blast that have not yet been launched. These L2s attract users to participate in ecosystem interaction through coin issuance expectations and overlapping revenue marketing. The upgrade of Dencun can greatly reduce the cost of user interaction and further promote the prosperity of such L2 on-chain activities. However, it is worth noting that the direction of such L2s after airdrops is still unclear, and at this stage, we can only remain cautiously optimistic about such projects.

Data Availability Layer

One of the core modules of Dencun's upgrade is the introduction of blob storage for submitting L2 data to L1. However, the data stored in the blob is not permanent and will be discarded after approximately one month. Nevertheless, this data still has potential value for analysis and retrieval. Therefore, the storage of this data will also drive the demand for decentralized storage services.

ETHStorage

EthStorage is the first Layer 2 solution that provides programmable dynamic storage based on Ethereum data availability. It can extend programmable storage to hundreds of TB or even PB levels at a cost of 1/100 to 1/1000.

ETHStorage is highly integrated with ETH. The client of EthStorage is a superset of the Ethereum client Geth, which means that when running a node of EthStorage, it can still participate in any process of Ethereum normally. A node can be both a validator node of Ethereum and a data node of EthStorage.

Furthermore, ETHStorage has stronger interoperability with EVM, allowing for perfect compatibility with EVM. For example, minting an NFT image stored on Arweave as an Ethereum NFT image requires three smart contract operations, while ETHStorage only requires one.

source：https://www.techflowpost.com/article/detail_12801.html

ETHStorage adopts the key-value storage paradigm and supports complete CRUD operations (create, read, update, delete storage data). ETHStorage is positioned as the first storage L2 in the Ethereum ecosystem. Thanks to its seamless interoperability with EVM and low storage costs, ETHStorage is expected to take over the L2 state data abandoned by blob.

Covalent

Another decentralized storage project worth paying attention to is Covalent. Covalent was the first to sniff out the business opportunity in data availability after the Cancun upgrade, and launched the "Ethereum Wayback Machine (EWM)" in November 2023 to store L2 state data that had been discarded by blobs for long-term storage.

source：https://www.covalenthq.com/docs/covalent-network/ewm-paper/

EigenDA

source：https://docs.eigenlayer.xyz/eigenda-guides/eigenda-overview

Polygon Avail

source：https://blog.availproject.org/the-avail-vision-reshaping-the-blockchain-landscape/

RaaS

Caldera

source：https://foresightventures.medium.com/foresight-ventures-what-is-raas-which-type-of-raas-will-win-the-market-b010006f5cd

Altlayer

source：https://docs.altlayer.io/altlayer-documentation/rollup-types/flash-layer-rollups

Lumoz

Perps

Due to the performance limitations of L2 networks, Perps projects are almost unable to run on-chain order books, making it difficult to efficiently respond to real-time order matching demands. Additionally, high network fees greatly limit the high-frequency trading of market makers and users. The above problems result in lower trading efficiency and higher trading slippage for Perps, making it unable to attract deep liquidity and professional trading users, and unable to provide users with a trading experience comparable to CEX.

We believe that the Dencun upgrade can to some extent solve the above problems, especially the performance improvement, which is particularly crucial for derivative trading. Compared with the point-to-point pool and AMM mode of Perps, the Dencun upgrade is more favorable for decentralized derivative exchanges with order book models such as ApeX Protocol, Aevo, and Vertex Protocol. Similarly, the reduction of network transaction costs will further stimulate the trading of more mature point-to-point pool mode Perps such as GMX, Synthetix, and GNS.

LSD

Aside from EIP-4844, the Dencun upgrade also includes the introduction of EIP-4788. EIP-4788 will bring the beacon block root into every EVM block, allowing the Ethereum mainnet to obtain data from the Ethereum consensus layer in a trust-minimized way, eliminating the need for external oracles and reducing potential security risks, oracle failures, and malicious manipulation risks. The introduction of EIP-4788 can further improve the security of the staking protocol. Although this improvement is not directly relevant to users, it is a potential major benefit for the LSD and ReStaking tracks. EIP-4788 allows liquidity staking protocols such as Lido, Rocketpool, Swell, and re-staking protocols such as Eigenlayer to directly access key data such as validator balances and statuses from the consensus layer, significantly improving their security and operational efficiency. We still have high expectations for the development of LSD, especially for the ReStaking track represented by Eigenlayer, after the Dencun upgrade. Eigenlayer has also been active recently, supporting various LSTs one after another, collaborating with Altlayer to launch Restaked Rollups, the ecological re-staking protocol Renzo has been launched, and EigenDA has also launched the second phase of the testnet. Eigenlayer's TVL has also reached 1.7B and continues to climb. The narrative of re-staking is just beginning, and EIP-4788 will provide a solid security guarantee for re-staking at the underlying level.

FOCG

Full-chain games are one of the biggest beneficiaries of Dencun's upgrade. Unlike Web2.5 games where only assets are on the chain, the game content, logic, rules, and assets of full-chain games are all on the chain. The gas fee on the chain determines the interaction cost of each game operation, and the on-chain performance determines the user experience of the players. Obviously, due to performance limitations, previous full-chain games were limited to relatively simple turn-based strategy games. The high interaction cost and the game's demand for high-frequency interaction also made many players hesitant to play.

Dencun's upgrade can intuitively improve the development dilemma of existing full-chain games, and even give birth to more types of full-chain games. We expect to see more full-chain games built on full-chain game engines such as Mud and Dojo, running on L2 Redstone and StarkNet. Existing full-chain games such as Sky Strife, Loot Survivor, Issac, and Influence may also capture more real players due to the improved user experience brought by Dencun's upgrade.

The landing of Dencun's upgrade will inject new vitality into the Ethereum ecosystem. Of course, in addition to the positive impact on the aforementioned track, Dencun's upgrade will also reduce the attractiveness and core competitiveness of some tracks such as sidechains and non-EVM expansion solutions. The significant reduction in the cost of EVM ecosystem L2, L3 and the improvement in performance will further overshadow sidechain solutions such as Polygon, and non-EVM expansion solutions such as BSC will also reduce their attractiveness due to cost and performance advantages. Dencun's upgrade will refocus the market on the Ethereum ecosystem with L2 and L3 as the core.

Summary:

1. Dencun upgrade, as part of the Ethereum upgrade roadmap "The Surge", aims to further reduce the usage cost and improve the scalability of the Ethereum ecosystem. The Dencun upgrade will introduce the instant storage opcode through EIP-1153, reducing the storage cost and gas consumption of the Ethereum mainnet, and improving the scalability of the mainnet. The Dencun upgrade will also introduce EIP-4844, which significantly reduces the transaction cost of Ethereum L2 and improves the transaction throughput of L2 by introducing a new data structure called blob.

2. Based on the current Shadowfork test report and the recent 178th Ethereum core developer execution meeting, the current test situation of Ethereum Dencun upgrade is good, and the three major testnets will conduct Dencun upgrade tests as expected from January to early February. If the testnet test goes smoothly, the Dencun upgrade of the mainnet is expected to be completed in February.

3. The upgrade of Dencun will further drive the prosperity of the L2 ecosystem, with particular attention to Optimism, Arbitrum, and Metis. The Dencun upgrade will also drive demand for infrastructure tracks such as decentralized storage, DA, and RaaS. The development of ecological projects such as EthStorage, Covalent, EigenDA, Polygon Avail, Caldera, Altlayer, and Lumoz is worth paying attention to.

4. Upgrading Dencun will also promote the development and innovation of the application layer. Order book models such as ApeX Protocol, Aevo, and Vertex Protocol, represented by Perps, will benefit significantly. EIP-4788 will improve the underlying security of LSD and ReStaking protocols, especially driving the development of the re-staking track represented by EigenLayer. The entire chain game will also bring users a better interactive experience with the upgrade of Dencun.

Reference：

1.https://vitalik.eth.limo/general/2023/12/28/cypherpunk.html

2.https://www.datawallet.com/crypto/ethereum-cancun-upgrade-explained#:~:text=Ethereum Cancun EIPs,-The imminent Ethereum&text=The Cancun component of the,costs%2C efficiently using block space.

3.https://ethereum-magicians.org/t/a-rollup-centric-ethereum-roadmap/4698

4.https://www.eip4844.com/#how

5.https://a16zcrypto.com/posts/article/an-overview-of-danksharding-and-a-proposal-for-improvement-of-das/

6.https://hacken.io/discover/eip-4844-explained/

7.Ethereum Evolved: Dencun Upgrade Part 3, EIP-4788

8.EIP-4844 Unveiled: Paving the Way for Proto-Danksharding in Ethereum

9.EIP-4844: Shard Blob Transactions

10.An explanation of the sharding + DAS proposal

11.Ethereum's Cancun-Deneb (Dencun) Upgrade: another milestone after the Shanghai Upgrade

12.Recapping the Rollups Roadmap

13.Ethereum: Dencun Upgrade and Proto-Danksharding

14.Unlocking Ethereum's Evolution: The Cancun Advancement