The Shocking Results of ETH’s Biggest Upgrade Since the Merge.

Dear

The much-anticipated Dencun upgrade for Ethereum has finally arrived, ushering in a new era of scalability for the blockchain. The Ethereum ecosystem underwent its most significant upgrade since the Merge, a transformation dubbed Dencun.

Dencun marks a pivotal development. Its primary objective is to drastically reduce fees across Ethereum's Layer-2 networks, with estimates projecting a remarkable decrease of over 75%. 

Reports indicate that this upgrade will significantly reduce transaction fees on layer 2 solutions, such as Arbitrum, Optimism, and the base layer from Coinbase. Projections suggest fee reductions of up to 99% for some layer 2 chains, making transactions virtually free.

The base layer from Coinbase seems to be one of the biggest beneficiaries of this upgrade. According to Jesse Pollack, the lead of Coinbase's base team, fees on base have dropped to just 0.0005 ETH per transaction post-Dencun.

This makes base the fastest and cheapest way to send Ethereum, even outperforming the highly-touted Solana blockchain. The upgrade sets the stage for further scaling of layer 2 solutions, with the potential for increasing capacity every 6 to 12 months

To be clear, this upgrade does not affect the Ethereum base layer. Just its Layer-2 networks.

That misunderstanding and subsequent disappointment is very likely contributing to Ethereum’s weaker performance as the week comes to a close.

Nevertheless, the reduction in fees on Layer-2 networks holds considerable importance, particularly for individuals engaging in small-scale crypto swaps, active on-chain use, or for use cases that require large numbers of micro-transactions, such as web3 gaming.

Dencun will roll out on the different Layer-2 networks at different times. So far, Arbitrum (ARB), Optimism (OP), Zora, and zkSync have gotten the upgrade.

As other Ethereum Layer-2 chains get updated in the next few weeks, users can anticipate significant reductions in fees.

Here are the estimated costs of swaps after the upgrade:

The goal of this upgrade isn’t just cheaper fees. It’s a big step toward developers’ end goal for the Ethereum base chain that it’ll primarily be a settlement layer.

That means developers hope that most activity and transactions will be on Layer-2 networks and even Layer-3 networks, with the main Ethereum chain only used to verify and confirm those transactions. 

This upgrade will mark a positive trajectory for Ethereum's future and adoption.

But what does this mean for you as an investor? 

It means you’ll be paying less fees when performing DeFi actions on these networks! 

One of the key advantages of the reduced fees is the potential for decentralized applications (dapps) to cover the gas costs for their users.

This strategy is already being implemented by projects like Optimism, which has launched a $3 million fund to cover gas fees for on-chain apps, effectively making them free to use for end-users. This could attract a new cohort of users to the Web3 ecosystem.

Other layer 2 solutions, such as Polygon and Avalanche, are also set to benefit from the Dencun upgrade, albeit with slightly different timelines. Polygon's zkVM is estimated to go live on the mainnet around May 1st, while Avalanche's support for the upgrade is expected later this year. Additionally, the cross-chain DEX dYdX (formerly known as Dexalot) has announced its upcoming launch on Arbitrum, which could further boost the platform's adoption.

The migration of projects to layer 2 solutions is already underway, with popular gaming platforms like Wagmi and Aether Games exploring a move to base and Avalanche, respectively. This shift highlights the growing importance of layer 2 scalability and the potential for these solutions to drive the next wave of innovation and adoption in the Web3 space.

This opens the world of DeFi even further to the wave of new crypto investors who thanks to those spot ETFs are now dipping their toes in. 

Now, that’s what I call sweet. 

Best regards,

Dr. Somto.