Layer 2's set to explode

Its Wednesday! The Ethereum developers are gearing up for the much-anticipated Dencun upgrade, set to introduce the most significant code changes to the Ethereum since the Shanghai upgrade.

What is it?

Dencun, derived from the merging of project names Deneb and Cancun, encompasses two crucial upgrades targeting Ethereum's consensus and execution layers, respectively.

Scheduled to commence around 13:55 UTC (9:55 a.m. ET), this technical "hard fork" aims to usher in a new era of reduced fees for Ethereum's burgeoning array of Layer-2 (L2) "rollups."

Central to this upgrade is Ethereum Improvement Proposal (EIP) 4844, introducing "proto-danksharding." This innovative approach enhances the chain's capacity to handle data from L2 networks, promising cheaper and more efficient transactions.

Although elements of Dencun have been in planning for several years, recent engineering concerns prompted a delay from its original late 2023 target.

However, rigorous testing across multiple test networks has provided confidence in the upgrade's readiness for deployment.

Source: BitGet

Understanding Dencun

Dencun heralds Ethereum's most substantial update since April 2023's Shanghai upgrade, which facilitated withdrawals of staked ether (ETH).

Its primary feature, proto-danksharding, introduces a novel method for storing transaction data onto Ethereum, notably benefiting Layer-2 networks like Arbitrum, Optimism, Polygon and many more.

Post-Dencun, L2s will leverage dedicated blobspace for data posting, reducing costs and enhancing efficiency.

We agree Blobspace is an odd name. However the technology is fascinating and revolutionary for Ethereum.

Blobspace stores large files off-chain and references them on-chain to improve Ethereum's scalability and performance.

This advancement represents Ethereum's initial foray into sharding techniques, aimed at tackling high gas fees and improving transaction throughput.

Impact on Layer 2 Tokens

Following the upgrade, Layer 2 fees are poised to plummet by a factor of 10. This translates to a significant reduction in the cost of token swapping on decentralized exchanges, where the current $1-2 expense could shrink to approximately 20 cents. In fact, on certain Layer 2 networks such as Base, these fees might plummet to as little as one cent.

Below is a Before vs After the Dencun upgrade.

Anticipation surrounding the Dencun upgrade has led to increased interest in Ethereum Layer-2 (L2) tokens. With expectations of significant fee reductions and enhanced scalability, tokens such as Arbitrum (ARB), Optimism (OP), Lido DAO (LDO), and Metis (METIS) have attracted traders eyeing potential gains.

Weekly price action of ARB

Weekly price action of OP

Weekly price action of LDO

Weekly price action of METIS

ARB, OP, LDO and METIS have already taken off and you missed it. But don’t worry we have a GEM that we believe will outperformed them all.

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