Ethereum Cancun Upgrade is Imminent, What Tracks are Profitable for the Period?

It is expected that at 21:55 pm Beijing time today, the Dencun Upgrade of Ethereum will be officially deployed on the mainnet. This is a major upgrade of Ethereum after nearly a year of completing the Shanghai upgrade in April 2023.

The Shanghai upgrade aimed to unlock staked coins and rewards for validators of staked ETH. In contrast, the core of the Cancun upgrade is the introduction of data unit Blob for Ethereum’s proto-Danksharding scheme, achieving the effect of reducing trading costs for Rollup-like Layer2 networks. After the Cancun upgrade, the Gas fees for Layer2 networks such as Optimism and Arbitrum will significantly decrease, and some developers estimate that the fees will decrease by at least 75%.

According to the Ethereum Foundation’s organization, a total of nine EIPs (Ethereum Improvement Proposals) will be implemented for the Cancun upgrade, specifically:

9 proposals and features for the Cancun upgrade

对于所有的 Gate.io 用户来讲，无需理解上述每一项 EIP 的具体内容，只需将目光聚焦于本次坎昆升级最为重要的一项更新——EIP-4844。

EIP-4844, an Important Step in Changing Game Rules

EIP-4844, also known as Proto-Danksharding, is the core component of the upcoming Ethereum Cancun upgrade. It is a transitional phase for the comprehensive implementation of Danksharding, which aims to significantly improve the scalability and trading speed of the Ethereum network. Proto-Danksharding has introduced a new trading method that accepts big data blocks, which is expected to reduce gas costs, improve trading throughput, and pave the way for a more scalable and efficient Ethereum network.

In Proto-Danksharding, “Blobs” refers to binary large objects, many data packets integrated into the Ethereum network to improve transaction throughput. These blobs contain additional information temporarily stored on the Ethereum consensus layer, which helps to adopt more cost-effective solutions to reduce gas fees.

By improving data availability and storage efficiency, Blobs play a crucial role in the transition to complete Danksharding, with the potential to make Ethereum networks more scalable and accessible. This innovative method is expected to change the game rules of network performance optimization, marking an important step for Ethereum towards becoming a global trading platform.

The Cancun upgrade will bring substantial benefits to the entire Ethereum network, including:
Enhance scalability: The introduction of Proto Danksharding will help process a larger number of transactions at a faster speed, thereby enhancing the Layer2 network running on the main blockchain.

Reduce gas fees: By utilizing data from Blobs and implementing EIP-4844, the upgrade aims to significantly reduce gas fees, which is particularly beneficial for Layer2 solutions and makes transactions more cost-effective.

Strengthen security: With measures such as EIP-6780, the network’s security infrastructure will be strengthened to protect user data and investments.

Efficient data storage: EIP-1153 will optimize data storage on the blockchain, improve operational efficiency and cost-effectiveness, which is a great blessing for Layer2 that relies on optimized data management.

Enhance cross-chain connectivity: With the EIP-4788 upgrade, the interaction between different blockchain networks will be smoother and safer, promoting better integration with Layer2.

Technological innovation: Through the subtle code modifications introduced by EIP-5656, this upgrade has laid the foundation for future technological progress and may drive innovation in Layer2.

Overall, the Cancun upgrade will make the Ethereum network more adaptable, secure, and user-friendly, consolidate its position in the crypto field, and enhance the functionality and efficiency of the Layer2 solution.

Profitable Tracks

1.The Cancun upgrade directly benefits the entire Layer2 sector. According to L2BEAT data, there are currently 45 Layer2 devices in operation, and there are also 34 Layer2 devices waiting to be launched on the mainnet. In addition to the already familiar coin projects such as Optimism (OP), Arbitrum (ARB), Starknet (STRK), Metis (METIS), and Manta Pacific (MANTA), there are also coin projects such as zkSync, Blast, Linea, Scroll, etc. that have not been issued yet.

Source: L2BEAT

In the long run, reducing transaction wear and tear will help major Layer 2 attract and retain more users, as well as attract more developers to conduct multidimensional development attempts, thereby continuously enhancing ecosystem vitality.

Among multiple Layer 2 platforms, zkSync may need special mention, as zkSync founder Alex Gluchowski mentioned that a new scalability solution, zkPorter, will be launched after the execution of EIP-4844, and zkPorter needs to rely on zkSync’s native tokens to ensure data availability, which may mean that zkSync should not be too far away from coin issuance.

2.In addition to directly benefiting Layer 2, projects with “high concurrency requirements” and “low unit value” attributes, such as games and social media above Layer 2, may experience an accelerated growth window. After the Cancun upgrade, TPS will be significantly improved, which will be more conducive to the uploading of game data and reduce user interaction costs. The IMX of the top target in Game Layer2 may directly benefit from the Cancun upgrade.

3.In addition, the storage concept project may also face certain development opportunities due to the changing storage requirements for transaction history in Layer2. Since Blob does not permanently store data like calldate, Layer2 needs to find other paths for long-term storage of historical transaction data, and new demands are new opportunities.

In summary, as the Dencun upgrade gradually becomes a reality, the overall fundamental condition of the Ethereum ecosystem is bound to experience significant improvement, and this benefit will also radiate to all components within the Ethereum ecosystem.

In the short term, after the upgrade is completed, users may not have any other obvious perceptions except for the cost reduction of Layer2. However, in the long run, the potential ecosystem vitality that the Dencun upgrade itself can bring, and its role as a foundation for subsequent upgrades will undoubtedly drive Ethereum toward a new stage of development.

It is worth noting that ARB will experience a huge amount of token unlocking during the period of the Cancun upgrade. According to Token Unlocks data, on March 16th, Arbitrum will release approximately 1.111 billion ARBs, accounting for approximately 76% of the circulating supply. As of writing, this batch of ARBs to be unlocked is worth $2.266 billion.

Among them, Arbitrum will unlock 673.5 million ARBs for its team and consultants, which is approximately $1.38 billion based on the current price of Gate.io. The additional 438.2 million ARB unlocked belongs to early investors of Arbitrum, with a current value of approximately $902 million. ARB holders need to monitor price fluctuations closely.