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Ethereum Dencun Upgrade to Lower Gas Fees and Propel L2 Innovation, Says Optimism Labs Chief

Last Updated March 14, 2024 10:10 AM
Shraddha Sharma
Last Updated March 14, 2024 10:10 AM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • The Dencun upgrade with EIP-4844 is aiming to reduce gas fees across Layer 2 platforms.
  • OP Labs chief envisions the upgrade as a major leap for Ethereum scalability. 
  • How will L2s like Optimism and broader web3 market change with the upgrade?

The Ethereum network’s “Dencun Upgrade” name is a combination of Deneb, a bright star in the Cygnus constellation, and Cancun, host city of Devcon 3.

The update introduces a feature known as proto-danksharding or EIP-4844. It alao aims to significantly lower gas fees on Layer 2 (L2) solutions.

With the implementation of EIP-4844, gas fees for transactions on platforms like Arbitrum, Base and Optimism are expected to decrease dramatically.

According to IntoTheBlock , a decentralized exchange (DEX) swap cost on Arbitrum is projected to drop from $2.02 to $0.40 and on Optimism from $1.42 to $0.28. CCN spoke to Karl Floersch, CEO of OP Labs and the co-founder of Optimism, to highlight the upgrade’s potential. Optimism Labs contributes to the development of Optimism protocol.

Transformation to Ethereum Scaling

Ethereum’s Dencun Upgrade aims to improve the functionality and scalability of the network. We asked Floersch what would be the market impact of the upgrade. He said: “Dencun will provide opportunities for developers to take advantage of decentralized computing to build apps that aren’t otherwise possible to build on-chain.”

Floersch explained that one of the main advantages of EIP-4844 is its ability to lower transaction fees, allowing developers to upload more content directly onto the blockchain. This increase in on-chain activities could, potentially, enrich the ecosystem with a broader array of composable applications. Essentially, as more features and functionalities become available on the blockchain, it creates a multiplier effect. There is an ever-expanding foundation of systems for developers to build upon. As a result, this enhances the overall versatility and utility of the blockchain infrastructure

According to the developer: “The scalability that Dencun brings truly unlocks the magic of decentralized, shared blockspace. It enables a group of loosely coordinated developers to actually build systems that provide improved user experiences.”

Floersch highlighted how the partnership between Ethereum Name Service (ENS) and OpenSea as an illustration of the upgrade’s importance for both developers and users.

He explained: “These are two distinct projects that enabled each other, you can buy and sell ENS names on OpenSea in an experience that works out of the box. Today, it’s the buying and selling of domain names in an NFT marketplace that’s possible.”

Improvement for L2s

According to IntoTheBlock figures, the cost of executing a swap on a decentralized exchange (DEX) could decrease after the upgrade. How will Ethereum-based L2s evolve as a result?

Floersch said: “With upcoming improvements, we’ll see more use cases of embedded wallets and gas subsidies for users. I also expect we’ll see a rise in things like free gas budgets for content creators, where users are able to earn and have their transactions sponsored as a result of their on-chain reputation.”

The executive explained that each time someone makes a transaction involving content, it has a financial worth. He used Zora’s marketing campaigns as an example, showing how these campaigns do more than just raise awareness—they can actually generate income through the creation and sale of NFTs. Floersch pointed out that as the fees for making transactions go down, there will be more transactions that add more value to the ecosystem than they cost to carry out.

Further benefits

This extra value benefits the creators, meaning those who contribute valuable content could end up not having to pay transaction fees, also known as gas fees. Their valuable transactions help the ecosystem grow. Therefore the system itself has the motivation to cover the costs for them.

Floersch added: “Four key upgrade components will provide significant benefits to developers deploying and building on OP Chains. Everyone’s aware that 4844 will lower fees and enable paymasters, gasless transactions and better user experiences, and those are the table stakes benefits of the upgrade.”

The Optimism co-founder described how the Dencun upgrade will make significant improvements to the Ethereum platform. Firstly, it will open up the beacon route within the OP Stack. This is crucial for the native deploying of liquid staking derivatives (LSDs). This means applications specializing in staking, such as Lido, will find it simpler to integrate their services with Layer 2 (L2) networks, thereby extending their reach into new areas.

He added: “Transient storage will create more performant smart contracts, with Uniswap V4 being the canonical example. Improved self-destruct will also add incremental EMV performance improvements.”

Multichain Future and Trade-offs

Meanwhile, the community is aware that addressing the scalability, security, and decentralization trilemma is crucial for blockchain networks, including Optimism and Ethereum. Floersch said: “Recent upgrades, along with Dencun, address the route issues of the scalability, security, and decentralization trilemma in such a way that balancing trade-offs becomes negligible.”

The CEO further explained that with the introduction of EIP-4844 in Ethereum, there’s a change in how data is managed. In the past, Ethereum used to keep all transaction-related data indefinitely. With the new update, however, certain types of data, known as ‘blob’ data, won’t be stored forever, according to Floersch.

He explained: “This could been seen as a tradeoff, but it’s not actually material because of the trust assumptions. There are slight differences in the infrastructure, but it’s more of an architectural improvement that enables virtually tradeoff-free gains in efficiency.”

With that, we circled around the idea of multi-chain future with L2s reaching an efficient level. With regard to Optimism, Floersch discussed the development of a standardized protocol for the OP Stack codebase. This is aimed at establishing the Superchain—a network of compatible and composable blockchain systems.

Such a setup allows app developers to build applications over various chains simultaneously. In turn, this lets them take full advantage of the combined network effects. 

He added: “This serves two purposes. Firstly, to steward that standard so that L2s can all work together in a seamless environment, interfacing with one another without friction.

 “Secondly, it helps to create a mechanism for all network participants to contribute back and fund the public good that is the OP Stack, along with the public goods built on top of it.”

Ethereum Update Paves for Future Innovation

Karl Floersch also emphasized how the upgrade will reduce transaction fees and allow developers to enhance their on-chain presence, thus creating a diverse ecosystem of apps.

These updates, according to Floersch, are not just incremental changes. He said they were also pivotal shifts that will benefit developers, users, and the broader web3 community. 

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