The Ethereum network has undergone one of its most significant upgrades since The Merge on March 13, 2024. The Dencun upgrade, which combines the Deneb and Cancun upgrades, will implement EIP-4844, also known as proto-danksharding. This upgrade is poised to bring massive scalability improvements and cost reductions to Ethereum's Layer 2 (L2) ecosystem, optimistic rollup, or zkRollup alike.

What is EIP-4844 

EIP-4844 introduces a new transaction type called "blob-carrying transactions" that allows for cheaper data posting on the Ethereum mainnet. Instead of using calldata, which is expensive and stored forever, L2s will be able to use blobs for settlement. Each block can contain up to 6 blobs, with each blob storing up to 128kb of data. Blobs are only required to be stored for approximately 18 days (4096 epochs), which is sufficient for L2 actors to retrieve the data while keeping disk usage and costs manageable.

The blob-carrying transactions operate on a new gas market similar to EIP-1559, where the base fee for blobs varies based on supply and demand. If the number of blobs in a block exceeds the target, the base fee increases, and vice versa. This dynamic pricing mechanism ensures efficiency and cost-effectiveness for L2s posting data on the mainnet.

The Impact of EIP-4844

The impact of EIP-4844 on the Ethereum L2 ecosystem is expected to be substantial. By reducing data publication costs, which account for a significant portion of L2 fees, EIP-4844 could slash transaction fees on L2s by 10 to 100 times. For example, according to Superchain Savings Estimator, a Uniswap DEX swap on Base, an L2 built with OP Stack, could see its cost drop from $0.5822 to just $0.0106. This drastic reduction in fees is expected to drive adoption among both users and developers, leading to an explosion of activity and the development of new applications across the L2 ecosystem.

Moreover, EIP-4844 sets the stage for further upgrades, such as full danksharding, which will further enhance Ethereum's scalability while preserving its decentralization. As L2 activity grows, solutions for liquidity fragmentation, such as universal synchronous composability, are being developed to allow seamless interaction between L2s via shared sequencing on L1 and real-time settlement.

What Could Happen After EIP-4844

Given how cheap each transaction is after this hardfork, we might see the following things on L2 in the future.

No Gas Fees

Many assets can generate yield in DeFi now, from the tokenized version of the US government’s short-term bond like USDY to liquid staking tokens like Lido’s stETH. The idea is similar to Blast or Mantle, where the L2 operators convert the deposited USDC into USDY and ETH to stETH equivalent - not only can the users earn yield from their deposits, but their earned yields on their deposits will be used to pay the gas fees. 

Subscription for Gas Fees

Those who don’t deposit yield-generating assets can opt to pay a monthly/annual subscription fee instead. This way, the L2 operator can have a more predictable revenue stream, and the users are incentivized to use the platform as often as possible, given they’ve paid the subscription fees.  

Similar to the feature above, to avoid bots spamming the network, there will probably be a cap on how many transactions are included in the package, and users will have to pay gas fees if they exceed the cap. 

Subsidized Gas Fees by More Apps

Before the upgrade, only a handful of platforms, like Paraswap and dydx, subsidized users' gas fees if they staked the tokens or deposited enough assets. After the upgrade, more apps can afford to subsidize gas fees for their active users.

Conclusion

The Dencun upgrade and the implementation of EIP-4844 mark a significant milestone in Ethereum's evolution. This upgrade will create a flywheel effect by drastically reducing costs and improving scalability on L2s, attracting more users, developers, and applications to the ecosystem. As fees decrease and adoption grows, the Ethereum network will continue to solidify its position as the leading platform for decentralized applications and services.