Ethereum: Will the Dencun upgrade be the savior L2s need?

• The scaling factor of L2 rollups exploded to 5x and, on certain days, even 7x, in the latter half of 2023.
• With the EIP-4844, storage costs on L1 would be eliminated.

The Ethereum [ETH] layer-2 (L2) landscape expanded by leaps and bounds in 2023. The blockspace demand for scaling solutions soared, with users scurrying to capitalize on their relative advantages.

Ethereum scales in 2023 and how!

As per AMBCrypto’s examination of L2Beat statistics, 2023 was indeed the moving year for scaling solutions built atop the base layer of Ethereum.

Fathom this — on the first of January 2023, the Ethereum mainnet clocked 13.67 transactions per second (TPS) on average, while the combined throughput of the scaling solutions was just 4.38.

By December, the story had changed dramatically. The scaling factor of L2 rollups exploded to 5x and, on certain days, even 7x. On the 15th of December, scaling solutions averaged more than 91 TPS when compared to Ethereum’s 13.45.

Source: L2Beat

With a growth trajectory like this, there were very few reasons not to be bullish on Ethereum L2s. However, the best part was yet to come.

Ethereum L2s wait for EIP-4844

The upcoming Cancun-Deneb upgrade, shortened to Dencun — or EIP-4844 — was the most anticipated Ethereum upgrade of 2024. Popularly referred to as Proto-Danksharding, the upgrade aims to achieve 10-100x cost savings on the rollups.

On-chain analyst Leon Waidmann drew attention to the projected gas fees reduction following the upgrade.

#Ethereum EIP-4844 will be a GAMECHANGER for L2s.

Fees on L2s will drop to mere CENTS.?

Post-EIP, we're talking going from $6.38 to $0.12 on @Starknet, or even as low as $0.03 on @arbitrum.

This is the fee reduction we've been waiting for!

This is the future of #ETH,… pic.twitter.com/p9jmNsoDH4

— Leon Waidmann | On-Chain Insights? (@LeonWaidmann) January 12, 2024

The cost for swapping tokens on decentralized exchanges (DEXs) was estimated to drop by as much as 90% for networks such as Starknet, Optimism [OP], and Arbitrum [ARB].

It remains to be seen if such optimistic projections come to fruition. Work on the upgrade was going on in full swing, and developers have eyed the 17th of January for a testnet launch.

The tech of it all

As is well known, rollups help cut fees by batching thousands of transactions into a single transaction and sending them back to Ethereum for validation.

However, the data is eventually stored on the chain forever and the storage costs are factored in the total gas fees.

Read Ethereum’s [ETH] Price Prediction 2023-24

With the EIP-4844, the data is sent to the nodes on the consensus layer, which would automatically get deleted after a certain period. During this time, nodes verify the authenticity of the data.

Hence, since data is not stored permanently, the storage cost component is eliminated, and users end up paying a lot less.