Ethereum’s Dencun Upgrade: Boon for L2 tokens or just hype?

One of the most-awaited updates in the blockchain market is now live: the Dencun Upgrade. Ethereum initiated the clock for its launch in early February. Speculations were that layer-2 tokens would get a boost, and Dencun Upgraded reported a commitment to bring down the average cost. It has done so; however, the boost is taking its sweet time, like the next couple of days that followed Bitcoin ETF approval.

Ethereum’s Dencun Upgrade, at its core, aims to facilitate cheaper transactions with higher efficiency. For this, it leverages the mechanism of Binary Large Objects, alternatively referred to as blobs. They batch transactions and compress them before processing them on the mainnet. Data is stored off-chain, outside of the Ethereum chain, unlike call data, which is expensive and boosts permanent storage.

Notably, data on blobs becomes inaccessible after three weeks.

Tokens were poised to get a boost because layer-2 rollups were slated to get a boost with a decline in the average cost of transactions. Some of the projects have already shown results. For instance, Optimism has reported a drop in transaction costs from $1.4 to 4 cents. Needless to say, these are average values, with actual values being different.

Other rollups that have benefited from the implementation of the upgrade are Base and Arbitrum. Their average transaction costs are down to 3 cents and 40 cents, respectively.

There are a total of 40 rollups on Ethereum, including 26 upcoming rollups. Most of them have manually implemented Dencun Upgrade, while others are expected to follow the suite. Vitalik Buterin has acknowledged the early success of blobs, stating that 125 kb of blobs costs nearly 0.001 ETH, while the same size of call data costs 0.06 ETH. For reference, a single ETH is currently selling for $3,686.94, which is a slip of 7.42% in the last 24 hours.

ETH has actually experienced a downfall in its value since the launch of Dencun Upgrade. It has been equally damaging to other tokens, such as ARB and OP. They are down by 7.84% and 11.26% in the last 24 hours, respectively. The Dencun Upgrade is still poised to pull up prices in the future.

That comes from the fundamental assumption that users are bound to realize the benefits that L2 rollups serve. That follows a higher usage and more attention to native tokens, which in turn fuels the demand and trade for them and hence the price. A tentative timeline is not made public, but it is safe to assume that the Dencun upgrade will eventually yield fruitful results.

The trends that BTC observed after the US SEC approved 11 ETF applications help to understand this better. The reasons were different; however, it is more about the reaction and time the market takes to get the bull running on the track.

Having mentioned Bitcoin, it has retraced back to $67,664.58 after dancing around $72k for a few moments. In a more optimistic scenario, the new resistance floor has been set at $50,000, or $55,000. A fall below that margin could potentially open the door to another widespread bearish mood.

That is important to understand because ETH and other tokens frequently follow the trend that BTC sets.

As for the Dencun Upgrade, it has achieved the feat of significantly bringing down the average transaction cost for L2 rollups. Speculation is that tokens will get a boost; it could be a matter of time before that actually happens.

Trevor Holman

Trevor Holman follows crypto industry since 2011. He joined CryptoNewsZ as a news writer and he provides technical analysis pieces and current market data. He is also an avid trader. In his free time, he loves to explore unexplored places.

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