The Week in Charts: Issue #49
The charts and themes from the past week that tell an interesting story in crypto and investing…
As you're likely aware, the highly anticipated Dencun upgrade for Ethereum went live on March 13th, marking the most significant network improvement since the Merge in 2022. While several Ethereum Improvement Proposals (EIPs) were implemented, EIP-4844, also known as proto-danksharding, stole the spotlight.
I've previously discussed proto-danksharding in detail (here, here), but here's a quick recap. Its primary goal is to significantly reduce transaction fees on Layer 2 scaling solutions. Notably, the Dencun upgrade wasn't directly aimed at improving Ethereum Layer 1 (L1) fees, but rather at creating a more cost-effective environment for Layer 2 networks.
EIP-4844 achieves this by introducing a concept called "blobspace" with its dedicated fee market. Traditionally, rollups (a type of Layer 2 solution) submitted call data to the Ethereum L1, which can be expensive. Proto-danksharding allows them to submit "blobs" instead. These blobs are essentially temporary data chunks stored on Ethereum for a limited period (currently 4,096 epochs) and come with a significantly lower fee structure.
The technical intricacies of EIP-4844 and blobspace are beyond the scope of this communication (refer to the provided links for a deeper dive). However, the focus of this newsletter is to delve into the current state of blobspace following the Dencun upgrade.
Dencun seems to be delivering on its promise! Most Layer 2 scaling solutions have experienced a staggering 93-95% decrease in transaction fees. This translates to costs often dipping below a single cent – a significant development for user adoption and network growth.
However, there's one outlier in this success story: Base. Unlike its counterparts, Base has seen transaction fees rise post-Dencun. This newsletter won't delve into the specifics of Base's situation, but a basic explanation lies in the cost structure of Layer 2s. Layer 2 fees typically consist of two components: execution cost and data publishing cost. Proto-danksharding, the core innovation of Dencun, primarily tackles the latter – the cost associated with publishing data on the Ethereum mainnet. Execution costs, which occur during the actual transaction processing on the Layer 2 network, remain unaffected.
EIP-4844 established a target of 3 blobs per block. However, real-world usage paints a slightly different picture. Over the past two hours, the average number of blobs per block has hovered around 1.3, suggesting an equilibrium point closer to 2 blobs per block for now.
Currently, the base fee for blobs sits at a low 1 gwei. This translates to cost-effective data storage for Layer 2s. However, this fee is likely to rise as blob usage inches closer to the 3-blob target.
With increased blob utilization, we may encounter blobspace congestion. This scenario would trigger a rise in the base fee, potentially negating some of the initial cost savings for Layer 2s. Finding the optimal usage level for blobspace is crucial. We need to strike a balance between maximizing Layer 2 cost savings and preventing congestion that could lead to fee hikes.
Currently, Arbitrum and Base are responsible for posting a significant majority of blobs – roughly 70%. This indicates that these Layer 2s are actively leveraging blobspace to optimize their transaction costs.
Here's the surprising bit: Starknet, despite not posting the most blobs, is currently incurring the highest hourly blob fees. Initially, these fees were a staggering $15,000 per hour, though they've since settled around $1,000 – still a significant amount. In comparison, ZkSync is averaging $200 per hour, and Arbitrum sits at $100. OpStack chains (Zora, Mode, Optimism, and Base) are currently paying the least, with fees below $20 per hour.
And that's it for this week.
Have a great weekend everyone.
- Passie
Forwarded this email? Sign up here to subscribe
I guess I'll read the previous Posts to understand.