Four months after the Cancun upgrade, how are Layer2s doing?

Original title: Explanation and analysis of the Ethereum update "Dencun" 4 months after its implementation

Original author: Filippo Pozzi, DeFi researcher

Original translation: Vernacular Blockchain

Before the update called "Dencun", Layer2 had already played an important role in the ecosystem. However, after the launch of this famous update, the outbreak of Layer2 has reached a level that was previously unimaginable, making it an indispensable element in the expansion and efficiency improvement of the entire ecosystem. Today we focus on analyzing the actual effect of this update, about four months after its official release. This period of time allows us to examine a large amount of data and evaluate the actual success or failure of the update.

1. What is Dencun

"Dencun" is an Ethereum update released on March 13, 2024, which combines the "Cancun" proposal for the Execution Layer and "Deneb" for the Consensus Layer. The update introduced a series of Ethereum Improvement Proposals (EIPs) aimed at improving different aspects of the Ethereum network. Among them, EIP-4844, also known as Proto-Danksharding, is of great significance in terms of the scalability of Layer 2 by creating Blobs that increase the possibility of data management within the network. How is it achieved?

Without going into too many technical details, we can think of "blobs" as data packets (256 KB) that represent a series of transactions that occur on Layer 2. These data packets are then packaged and subsequently sent to the Ethereum network for verification. Through txcity.io, I show you a graphical example.

What we see here is a representation of two blockchains: Ethereum on the left, and Arbitrum (Dencun’s newer network) on the right, with each person moving representing a transaction.

Let’s focus on the right side, which represents the Arbitrum blockchain, one of Ethereum’s main Layer 2s. As you can see, all people using that blockchain leave a piece of paper on the counter before handing it off to the conveyor belt represented by the Arbitrum blockchain. This piece of paper represents a receipt for the transactions that took place within Arbitrum. Because Arbitrum uses a mechanism called optimistic rollup, it initially treats all transactions as valid, based on the assumption that they are honest. Subsequently, the transactions are made public for everyone to review and dispute within a certain period of time.

Once a certain number of transactions is reached, as shown in the video, the “postman” collects all transactions by rotating and forms what we define as a “blob”. Later, if we look closely, as the postman starts pointing at the arrow indicating the direction of Ethereum, we will see that the image of the postman also appears on the left side of the screen, representing the Ethereum blockchain. Here, the postman holds his “blob”, a data packet of a series of transactions that occurred on Layer 2, and enters the Ethereum “bus” representing the main blockchain, that is, a block.

As shown in the video, this process is as simple as a “normal” transaction. In fact, there is no difference between the postman and the many passengers represented by boarding the Ethereum block. The difference is that the postman brings a series of transactions, while the others represent a single transaction native to the Ethereum network.

Through this “simple” process of creating blobs, the fees on various Layer 2s have been reduced by more than 90%, making operations within these blockchains almost free, thus leading to a surge in transactions in all major Layer 2s.

Now, we will look at the improvements brought by this update through on-chain data.

2. Average Fees of Major Layer2 Transactions

We can summarize today’s discussion by observing this graph, which represents the average transaction costs incurred before and after the implementation of Dencun.

From the graph, it can be clearly seen that starting from March 13, the average transaction costs of Layer 2s such as Arbitrum, Optimism or ZkSync dropped instantly, from values of about $0.50 to values close to 0.

What is amazing is that despite some temporary spikes in transaction costs on the base blockchains in the chart, all other major Layer 2s have been able to remain stable, with transaction costs close to 0 and do not suffer from the block congestion problems that blockchains such as Solana have experienced.

The reduction in transaction costs opened the door for all kinds of people to enter the industry, even with a more limited investment. This triggered a wave of activity on all major Layer2s, leading to a real boom in operations.

Another indicator that confirms the higher activity within the major Layer2s is undoubtedly the number of transactions verified on the blockchain.

Source: Dune @glxyresearch_team/ EIP-4844 Blobs

As the above chart clearly shows, with the exception of zkSync, all other Layer2s have recorded a significant increase in the number of transactions, resulting in a significant increase in transaction volume, with Base in early April and Arbitrum in late May being particularly significant.

3. Average Number of Blobs per Block

Source: Dune @hildobby/ Ethereum Blobs

The chart provides a detailed view of the blockchain network's operating status, highlighting the number of "blobs" contained in each Ethereum block. The target and limit lines represent the ideal and maximum values supported by the network itself. These parameters are crucial to optimizing the overall efficiency of the blockchain and avoiding excessive overhead. Actively monitoring the number of “blobs” in each block is essential to ensure that the network can efficiently handle the transaction load while maintaining stability and performance. Therefore, this data remains crucial to give operators an understanding of the health of the network.

4. Conclusion

There is no doubt that this update has significantly reduced transaction costs, and its effects have continued despite the increase in transaction volume on the main Layer2.

As Vitalik Buterin highlights in his article “Layer2 as an Extension of Ethereum Culture”, Layer2 has become an important part of the blockchain space and will continue to grow in importance. This is attributed to its increasingly broad infrastructure integration, making its use increasingly important in the Ethereum ecosystem.

I would like to end by quoting a part of the above article, in which Vitalik answers a question about how to successfully develop the culture of Layer2. His answer, I think, is very fascinating and reflects the true, fundamental spirit of developers and DeFi enthusiasts, the real spirit.

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