Kernel Ventures: Pan-Ethereum ecological outlook under Cancun upgrade

Author: Kernel Ventures Jerry Luo

TLDR:

• Ethereum has completed the first three upgrade stages, which respectively solved the problems of development threshold, DoS attack and POS transformation. The main upgrade goal at this stage is to reduce transaction costs and optimize user experience.

• EIP-1553, EIP-4788, EIP-5656, and EIP-6780 four proposals respectively achieve the reduction of interaction costs between contracts. , improve beacon chain access efficiency, reduce data copy costs and limit the role of SELFDESTRUCT bytecode.

• EIP-4844 can greatly improve Ethereum's TPS and reduce data storage costs by introducing blob data plugged into the block. .

• The Cancun upgrade will have additional benefits for the Ethereum-specific DA in the DA track, and at this stage the Ethereum Foundation is not interested in data storage. There is a rejection of the DA scheme that does not rely on Ethereum at all.

• Due to the more mature development environment of Op Layer2 and more demand for the Ethereum DA layer, the Cancun upgrade may give It brings relatively more benefits.

• The Cancun upgrade can increase the performance limit of DApp, making DApp have functions closer to those of Apps in Web2. Full-chain games that have not dissipated in popularity and require a large amount of storage space on Ethereum are worthy of attention.

• The Ethereum ecosystem is undervalued at this stage, and the Cancun upgrade may be a signal that Ethereum begins to strengthen.

The road to Ethereum upgrade

Since October last year From Cointelegraph's fake news about the adoption of the Bitcoin ETF on January 16 to the final approval of the ETF on January 11 this year, the entire crypto market experienced a period of continuous rise. Since the most direct benefit of ETF is Bitcoin, the trends of Ethereum and Bitcoin have diverged during this period. Bitcoin has reached a maximum of close to 49,000 US dollars, which has recovered 2/3 of the peak of the previous bull market, while Ethereum has reached a maximum of only $49,000. To around US$2,700, it was just over half of the peak of the last bull market. However, since the launch of the Bitcoin ETF, the ETH/BTC trend has rebounded significantly. In addition to the expectations of the upcoming Ethereum ETF, another important reason is that the repeatedly delayed Cancun upgrade has also recently announced the launch of the Goerli test network. The public test released a signal that it was about to take place. As things stand, the Cancun upgrade will not occur earlier than the first quarter of 2024. The Cancun upgrade is dedicated to solving the current problems of low TPS and high transaction fees on Ethereum, and is part of the Serenity upgrade phase of Ethereum. Before Serenity, Ethereum had gone through three stages: Frontier, Homestead, and Metropolis. The first three stages respectively solved the problems of development threshold, DoS attack and POS transformation on Ethereum. It is clearly stated in the Ethereum Roadmap that the main goal at this stage is to achieve “Cheaper Transactions” and “Better User Experience”.

Core content of Cancun upgrade

Ethereum as a decentralized community, the source of its upgrade plan Among the proposals put forward by the developer community and finally approved by the majority of the Ethereum community, the ERC proposal was passed, and the EIP proposal is still under discussion or will be implemented on the main network. This Cancun upgrade is expected to pass 5 EIP proposals, namely EIP-1153, EIP-4788, EIP-5656, EIP-6780 and EIP-4844.

Main mission: EIP-4844

• Blob: A new transaction type blob was introduced for Ethereum in EIP-4844, a data packet with a size of 125kb. Blobs compress and encode transaction data and are not permanently stored on Ethereum in the form of CALLDATA bytecode, thus greatly reducing gas consumption, but cannot be accessed directly in the EVM. In Ethereum after the implementation of EIP-4844, each transaction can carry up to two blobs, and each block can carry up to 16 blobs. However, the Ethereum community recommends that the number of blobs carried in each block is 8. When this number is exceeded, although you can continue to carry it, you will face relatively increasing gas fees, until the upper limit of 16 blobs.

In addition, the other two core technologies utilized in EIP-4844 are KZG polynomial commitment and temporary storage. All in all, EIP-4844 has changed the size of a single Ethereum block and the storage location of transaction data, which has significantly improved the TPS of the main network while reducing the gas of the Ethereum main network.

Side mission: EIP-1153

• EIP-1153: This proposal is proposed to reduce storage costs during contract interaction. The last transaction in Ethereum can be broken down into multiple frames created by the CALL instruction set. These frames may belong to different contracts and thus may involve the transmission of information from multiple contracts. There are two ways to transmit status between different contracts, one is input/output, and the other is to call SSTORE/SLOAD bytecode to achieve permanent storage on the chain. In the former, data is stored and transmitted in the form of memory, which has lower costs. However, if the entire transmission process passes through any untrustworthy third-party contract, there will be huge security risks. But if you choose the latter, it will bring a lot of storage overhead and increase the burden of on-chain storage. EIP-1153 solved this problem by introducing the transient storage operation codes TSTORE and TLOAD. Variables stored through these two bytecodes have the same properties as variables stored in SSTORE/SLOAD bytecodes and cannot be modified during the transmission process. But the difference is that the instantaneously stored data will not remain on the chain after the transaction ends, but will be annihilated like temporary variables. In this way, the security of the state transfer process and relatively low storage are achieved. cost.

• EIP-4788: Information after Ethereum POS upgrade In the beacon chain, each new execution block contains the Root of the parent beacon block. Even if some roots that were generated earlier are lost, since the roots stored by the consensus layer are reliable, we only need to keep some of the latest roots when creating new blocks. However, in the process of creating new blocks, frequent data requests from the EVM to the consensus layer will cause low execution efficiency and create the possibility of MEV. Therefore, in EIP-4788, it is proposed to use a special Beacon Root Contract to store the latest Root, which makes the Root of the parent beacon block exposed by EVM, greatly improving the efficiency of data calling.

• EIP-5656: Copying data in memory is A very high-frequency basic operation on Ethereum, but performing this operation on the EVM incurs a lot of overhead. To solve this problem, the Ethereum community proposed the MCOPY opcode in EIP-5656 that can efficiently copy on the EVM. MCOPY uses special data structures for short-term storage of responsible data, including efficient shard access and memory object copying. Having a dedicated MCOPY instruction also provides forward-looking protection against changes in the gas cost of the CALL instruction in future Ethereum upgrades.

• EIP-6780: In Ethereum, SELFDESTRUCT can be used to A contract is destroyed and all codes of the contract and all states related to the contract are cleared. But in the Verkle Tree structure that Ethereum will use in the future, this will bring huge hidden dangers. In Ethereum using Verkle Tire to store state, emptied storage will be marked as previously written but empty, which will not cause an observable difference in EVM execution, but will cause an observable difference compared to an operation that did not occur. Created and deleted contracts will generate different Verkle Commitments, which will cause data verification problems in Ethereum under the Verkle Tree structure. Therefore, SELFDESTRUCT in EIP-6780 only retains the function of returning the ETH in the contract to the specified address, and will continue to save the code and storage state related to the contract on Ethereum.

Cancun’s upgraded major tracks

DA track

Ecological value discussion

About the DA principle For an introduction to various DA types, please refer to our previous article Kernel Ventures: An article exploring DA and historical data layer design. For the DA project, its revenue comes from the fees paid by users to store data on it, and its expenses come from the fees paid to maintain the operation of the storage network and the persistence and security of the stored data. The income and expenses are subtracted, and what is left is the value accumulated by the network. To increase the value of the DA project, the most important means is to improve the utilization rate of network storage space and attract as many users as possible to use the network for storage. On the other hand, improvements in storage technology such as compressed data or sharded storage can reduce network expenses and achieve higher value accumulation.

DA track breakdown

DA is currently available The service projects are mainly divided into three types, namely main chain dedicated DA, modular DA and storage public chain DA. For a detailed introduction and difference between the three, see Kernel Ventures: An article exploring DA and historical data layer design.

The impact of the Cancun upgrade on the DA project

• User needs: After the Cancun upgrade, Ethereum's historical transaction data will grow dozens of times the original growth rate. These historical data will also bring greater storage requirements. However, since the current Ethereum upgrade in Cancun has not achieved improvement in storage performance, the DA layer of the main chain adopts a simple and regular cleaning method for these histories. The storage market for this part of data naturally falls on various DA projects, thus bringing greater user demand.

• Development direction: The increase in historical data of Ethereum after the Cancun upgrade will prompt major DA projects to improve their data with Ethereum Interaction efficiency and interoperability to better seize this part of the market. It is foreseeable that various cross-public chain storage bridge technologies will become the focus of the development of storage public chain DA and modular DA. As for Ethereum’s main chain-specific DA, it also needs to consider how to further enhance its connection with the main network. Compatibility, minimizing transmission costs and transmission risks.

Different DA tracks under Cancun upgrade

While the Cancun upgrade brought faster data growth to Ethereum, it did not change the data storage method synchronized across the entire network. This forced the main chain to regularly clean up a large amount of historical data and decentralize transaction data for a long time. Storage functions. However, there is still a need for this part of historical data during airdrops by project parties and data analysis by on-chain analysis institutions. The data value behind it will lead to competition among different DA project parties, and the key to determining the market share direction is the data security and storage cost of the DA project.

• Main chain-specific DA: Current main chain DA projects such as EthStorage, storage market It mainly comes from some pictures, music and other large memory data of NFT projects on Ethereum. Due to its high compatibility with Ethereum on the node cluster, the main chain DA can achieve secure data interaction with the Ethereum main network at low cost. At the same time, it stores the storage index data on the Ethereum mainnet smart contract without completely separating the DA layer from Ethereum, thus receiving strong support from the Ethereum Foundation. For the storage market brought by Ethereum, main chain-specific DA has natural advantages over other DAs.

• Storage public chain DA and modular DA: This type of non-main chain DA project is difficult to overcome compared to Ethereum’s dedicated DA. Obtain competitive advantage in historical data storage performance during Kun upgrade. However, the current Ethereum dedicated DA is still in the testing stage and has not been fully implemented. The Cancun upgrade is imminent. If the dedicated DA project cannot provide a realized storage solution before the Cancun upgrade, the value of this round of data will be It is still possible that the mining of will be dominated by modular DA.

Opportunities for DA under Cancun’s upgrade

• EthStorage: The main chain project of the EthStorage class will be the biggest beneficiary of the Cancun upgrade, so you can focus on the EthStorage project before and after the Cancun upgrade. . In addition, after the recent news that the Cancun upgrade may be carried out in February this year, EthStorage's official push has also been frequent. It has released its latest official website and annual report, and it seems to be very diligent in publicity.

But comparing the content of the latest official website with the content of the 2022 version of the official website, in addition to the cooler front-end effects and more detailed Apart from the introduction, not many innovations in service functions have been achieved, and the main promotion is still storage and Web3Q domain name services. If you are interested, you can click the link below (https://galileo.web3q.io/faucet.w3q/faucet.html) to receive the test token W3Q and experience the EthStorage service on the Galileo Chain network. To participate in receiving tokens, you need to have one Accounts with W3Q domain names or mainnet balances exceeding 0.1 ETH. Judging from the recent water output from faucets, despite some publicity, there is not a very large amount of participation at this stage. However, considering that EthStorage just received US$7 million in seed round financing in July this year and has not seen the obvious source of the funds, it is also possible that the project team is secretly brewing some infrastructure advancement, waiting for the Cancun upgrade to arrive. Post early to attract maximum buzz.

• Celestia: Celestia is the leading project of modular DA at this stage. Compared to the Ethereum-specific DA project that is still under development, Celestia began to prosper as early as the last bull market and received its first round of financing. After more than two years of precipitation, Celestia has perfected its Rollup model, token model and after a long period of testnet testing, it finally completed its mainnet launch and the first batch of airdrops on October 31, 2023. It can be seen that its currency price has been rising since its opening. Recently, the currency price once exceeded 20 US dollars. Based on the current circulation of 150 million TIA, the market value of this project has reached around 3 billion US dollars. However, considering the limited service group of the blockchain historical storage track, TIA's market value has far exceeded the traditional storage public chain Arweave with a richer profit model and is close to the market value of Filecoin, although there is still a certain increase compared to the bull market. space, the market value of TIA is somewhat overvalued at this stage. However, with the support of star projects and the undissipated enthusiasm for airdrops, if the Cancun upgrade can be promoted as scheduled in the first quarter of this year, Celestia is still a project worthy of attention. But there is one risk that is worth noting. The Ethereum Foundation has repeatedly emphasized in discussions involving Celestia that projects that break away from the Ethereum DA layer will not be Layer 2, which shows the potential of non-Ethereum native storage projects such as Celestia. Rejecting attitude. The possible stance of the Ethereum Foundation before and after the Cancun upgrade will also bring uncertainty to the Celestia price trend.

Layer2 track

Ecological value discussion

Due to the continuous increase in the number of users on Ethereum and the continuous development of projects, Ethereum’s low TPS has become a huge obstacle to the further development of its ecosystem, and at the same time, the high transaction fees on Ethereum It also makes it difficult for some projects involving complex interactions to be promoted on a large scale. However, many projects have already landed on Ethereum, and migration involves huge costs and risks. At the same time, except for the Bitcoin public chain that focuses on payment, it is difficult to find a public chain with the same security as Ethereum. The emergence of Layer2 is an attempt to solve the above problems. It places all transaction processing and calculations on another public chain (Layer2). After the data is packaged, it is verified through the smart contract bridged with Layer1; and the status is changed on the main network. . Layer2 focuses on transaction processing and verification, using Ethereum as the DA layer to store compressed transaction data, so it has faster speed and lower computing cost. If users want to use Layer2 to perform transactions, they need to purchase the corresponding Layer2 tokens in advance and pay the network operator. The network operator of Layer2 needs to pay corresponding fees for the security of data stored in Ethereum. The fee paid by users for the security of Layer2 data minus the fee paid by Layer2 for data security on Layer1 is the network revenue of Layer2. Therefore, for Layer 2 on Ethereum, improvements in the following two aspects can bring more benefits. From an open source perspective, the more active the Ethereum ecosystem is and the more projects there are, the more users and project parties will have the need to reduce gas and accelerate transactions, thus bringing a larger user base to the Layer 2 ecosystem and a single transaction. As long as profits remain unchanged, more transactions will bring more benefits to Layer 2 network operators. From the perspective of cost-saving, if the storage cost of Ethereum itself decreases, the DA layer storage fee paid by the Layer 2 project side decreases. Under the premise that the number of transactions remains unchanged, Layer 2 operators can also obtain more benefits.

Layer2 track breakdown

Around 2018, Ethereum’s Layer2 solutions flourished. In this situation, there are a total of 4 solutions including side chain, Rollup, state channel and Plasma. However, due to the risk of data unavailability during off-chain channel transmission and a large number of grief attacks, state channels have been gradually marginalized from Layer 2 solutions at this stage. The Plasma type is relatively niche, and the total TVL cannot enter the top 10 in Layer 2, so there is not much discussion. Finally, for the Layer 2 solution in the form of side chain, it does not use Ethereum as the DA layer at all, so it is gradually excluded from the definition of Layer 2. This article only discusses Rollup, the current mainstream Layer 2 solution, and analyzes it combined with its subdivided tracks ZKRollup and OpRollup.

Optimistic Rollup

• Implementation principle: During the initialization phase, the Optimistic Rollup chain needs to deploy a chain bridge contract on the Ethereum main network, and interact with the Ethereum main network through this contract. Op Layer2 will package the user's transaction data in batches and send it to Ethereum, which includes the latest status root of the account on Layer2, the batch root and the compressed transaction data. At this stage, these data are stored in the chain bridge contract in the form of Calldata. Although a lot of gas has been reduced compared to the permanent storage in MPT, it is still a large amount of data overhead, and it is also a big problem for Op Layer2 (Optimistic Rollup). Layer 2) possible future performance improvements have created many obstacles.

• Current status: Op Layer2 at this stage is the first in Layer2 Big Ecosystem, the top five public chains with TVL rankings all come from the Optimistic Rollup ecosystem. The total TVL of the two public chains, Optimism and Arbitrium alone, exceeds 16 billion US dollars.

One ​​of the main reasons why the Op Rollup ecosystem can occupy the leading position today is its friendly development environment, and it completed the first project before ZK Rollup. The release of Layer 2 and the launch of the mainnet have attracted a large number of DApp developers who are limited by Ethereum's handling fees and low TPS, and have shifted the DApp development position from Layer 1 to Layer 2. At the same time, Op Layer2 has higher compatibility with EVM at the bottom level, clearing obstacles for the migration of Ethereum mainnet projects, and realizing the deployment of Uniswap, Sushiswap, Cureve and other DApps on Ethereum in Layer2 in the fastest time. It has even attracted projects such as Wordcoin to migrate from the Polygon mainnet. The current Op Layer2 includes both Ethereum-leading DeFi such as Uniswap V3, native DeFi projects such as GMX with a TVL of more than 100 million US dollars, and SocialFi projects such as Friend.tech with transaction fees exceeding 20 million. Not only has it completed The accumulation in the number of projects and the high-quality projects in each track have also led to breakthroughs in the entire ecological quality. But in the long term, ZK Layer2 (ZK Rollup Layer2) has a higher TPS limit and lower gas consumption for a single transaction. When the subsequent ZK Rollup technology is gradually improved, Op Layer2 will face fierce competition with ZK Layer2. .

ZK Rollup (Zeroknowledge Rollup)

• Implementation principle: The transaction data in ZK Layer2 has a processing method similar to Op Layer2. It is packaged and processed on Layer2 and then returned to the smart contract of Layer1 for storage as Calldata. However, the transaction data has an extra step in the calculation process of generating ZKp on Layer 2. At the same time, there is no need to return the compressed transaction data to the network, but only the transaction root and batch root are returned along with the ZKp used to verify the legality of the corresponding transaction. The data returned to Layer1 through ZK Rollup does not require any window period and can be updated in real time on the main network after passing the verification.

• Current situation: ZK Layer2 at this stage has developed into the second layer The big Layer2 ecosystem follows closely behind Op Layer2. Among the top 10 TVL Layer 2s, ZK series also accounts for 4, but overall it shows the phenomenon of being too numerous but not strong. Everyone thinks that ZK series Layer 2 has great development prospects, but it just cannot develop. First of all, because the early release of Op Layer 2 has attracted many developers to launch projects on it, if it cannot gain enough advantages from the project migration, the project party is unlikely to generate stable income on Op Layer 2. The project is migrated. Second is the ZK series Layer 2. Many are still working on the compatibility of the underlying layer with Ethereum. For example, the star project Linea of ​​the ZK series is not compatible with many EVM opcodes at this stage, which brings many development obstacles to developers who have adapted to EVM. , and another star project, zkSync, is currently almost unable to achieve compatibility with the underlying EVM and can only be compatible with some development tools of Ethereum.

The compatibility with Ethereum also brings great difficulty to the migration of native projects on it. Since the bytecode is not fully interoperable, the project team needs to change the underlying contract to adapt to zkEVM. This process involves many difficulties and risks, which greatly slows down the migration process of Ethereum native projects. It can be seen that most of the projects on ZK Layer 2 at this stage are native projects, and they are mainly DeFi projects such as Zigzag and SyncSwap, which are relatively easy to develop. The total number and diversity of projects on ZK Layer 2 are waiting for further development. However, the advantage of ZK Layer2 lies in its technological advancement. If the compatibility between zkEVM and EVM can be achieved and the ZKp generation algorithm can be improved, it will have a better performance limit than Op Layer2. This is also the reason why ZK Layer2 projects will continue to appear even in the market dominated by Op Layer2 at this stage. When the Op Layer2 track has been carved up, the most suitable way for latecomers can only be to propose a An expected better solution to attract users to migrate from the original network. But even if one day ZK Layer2 achieves technical perfection, if a sufficiently comprehensive ecosystem has been formed on Op Layer2, and enough projects have been implemented, even if there is a better-performing Layer2, can users and developers Willingness to take huge risks to migrate will also be an unknown. In addition, Op Layer2 is also constantly improving at this stage to stabilize its ecological position, including Optimism's open source Op Stack to assist other Op Layer2 developers in the rapid development and improvements to challenge methods such as the binary challenge method. While ZK Layer2 is in the process of improvement, Op Layer2 has not slowed down its development. Therefore, the important task of ZK Layer2 at this stage is to grasp the improvement of cryptographic algorithms and compatibility with EVM to prevent users from becoming ecologically dependent on Op Layer2. form.

The impact of Cancun upgrade on Layer2

• Transaction speed: After the Cancun upgrade, a block can carry up to 20 times the original data through blobs, while keeping the block production speed unchanged. Therefore, theoretically speaking, Layer 2 with Layer 1 as the DA layer and settlement layer can also achieve a TPS increase of up to 20 times compared to the original. Even based on an estimate of 10x growth, the transaction speed of any one of several major Layer 2 star projects will exceed the highest transaction speed in the history of the Ethereum mainnet.

• Transaction fees: an important factor in limiting the ability of the Layer2 network to decline The reason comes from the data security fee provided to Layer1. Based on the current quotation, the storage price of 1KB Calldata data on the Ethereum smart contract is close to 3 US dollars. However, through the Cancun upgrade, the transaction data packaged by Layer 2 is only stored in the consensus layer of Ethereum in the form of blobs, and 1 GB of data storage only costs about 0.1 US dollars a month, which greatly reduces the operating costs of Layer 2. As for the revenue generated by this open source, Layer 2 operators will definitely give some profits to users to attract more users and thereby reduce Layer 2 transaction costs.

• Scalability: The impact of the Cancun upgrade on Layer2 mainly comes from its temporary storage solution and new blob data type. Temporary storage will regularly delete old states on the main network that are of little use for current verification, reducing the storage pressure on nodes, thus speeding up network synchronization and node access between Layer1 and Layer2. Blobs can better adapt to changes in network transaction volume through the huge space outside and the flexible adjustment mechanism based on gas prices. When the transaction volume is too large, the number of blobs carried in a block is increased, and when the transaction volume decreases, It can also be reduced accordingly.

Different Layer 2 tracks under Cancun upgrade

The arrival of the Cancun upgrade will be beneficial to the entire Layer 2 ecosystem. Because the core change in the Cancun upgrade is to reduce the cost of data storage and the size of a single block on Ethereum, Layer 2 with Ethereum as the DA layer can naturally get a corresponding increase in TPS and reduce the storage fees paid to Layer 1. . However, due to the different degree of use of the two Rollups for the DA layer of Ethereum, the benefits to Op Layer2 and ZK Layer2 will be different.

• Op Layer2: Due to the need to keep the compressed complete transaction data in Ethernet on Op Layer2 It is recorded on the forum, which causes it to pay more transaction fees to Ethereum than ZK Layer2. Therefore, after reducing gas consumption through EIP-4844, Op Layer 2 will be able to achieve a relatively greater reduction in handling fees, thereby relatively narrowing the disadvantage in handling fees compared to ZK Layer 2. At the same time, this round of gas reduction in Ethereum will inevitably attract the influx of more participants and developers. Compared with ZK Layer 2, which has no currency and is difficult to be compatible with EVM at the bottom layer, more projects and capital will tend to pour into Op Layer 2. Especially Arbitrium, which has been performing strongly in the recent period. This may bring about a new round of development of the Layer2 ecosystem dominated by Op Layer2, especially the SocialFi and GameFi projects that are affected by high handling fees and have difficulty in providing high-quality user experience. Along with this, many high-quality projects that can approach the Web2 user experience may emerge on Layer 2 at this stage. If this round of development high ground is captured by Op again, it will further widen the gap with the ZK Layer2 ecosystem as a whole, creating enough difficulties for ZK Layer2 to catch up in the future.

• ZK Layer2: Compared with Op Layer2, since ZK Layer2 does not need to store specific information about transactions on the chain, the benefits of gas reduction will be Less than Op Layer2. Although ZK Layer2 is in the process of development as a whole and does not have the huge ecology of Op Layer2, the facilities on Op Layer2 have become more complete, and there is more fierce competition in the development of it, and for the new entrants attracted by the Cancun upgrade It may not be a wise choice for Op Layer 2 developers to compete with the already mature Op Layer 2 developers. If ZK Layer2 can improve developer supporting facilities at this stage and provide developers with a better development environment, considering the better expectations of ZK Layer2 and the intensity of market competition, perhaps new developers will choose to influx. On the ZK Layer2 track, this process will actually accelerate the catching up process of ZK Layer2 and achieve overtaking before Op Layer2 completely forms a dominant advantage.

Opportunities for Layer 2 under Cancun’s upgrade

• DYDX: Although DYDX is a DEX deployed on Ethereum, its functions and principles are very different from traditional DEX on Ethereum such as Uniswap. First of all, it uses the order book instead of the AMM trading model used by mainstream DEX, so that users can get a smoother trading experience, which also creates a good condition for margin trading on it. In addition, it utilizes layer 2 solutions such as StarkEx to achieve scalability and process transactions, packaging transactions off-chain and transmitting them back to the chain. Through the underlying principle of Layer2, DYDX allows users to obtain transaction costs that are far lower than traditional DEX, with the cost of each transaction being only about US$0.005. At a time when Ethereum and related tokens are experiencing violent fluctuations due to the Cancun upgrade, there will almost certainly be a surge in the amount of funds for high-risk investments such as leveraged trading. Through the Cancun upgrade, the transaction fees on DYDX will surpass CEX even for small transactions, and it will also have higher fairness and security, thus providing an absolute solution for high-risk investments and leverage enthusiasts. Good trading environment. From the above perspective, the Cancun upgrade will bring a very good opportunity to DYDX.

• Rollup Node: For the verification of new blocks, the data that was regularly cleaned during the Cancun upgrade is no longer meaningful, but This does not mean that the cleaned data has no value. For example, projects that are about to be airdropped need complete historical data to determine the safety of funds for each project that is about to receive airdrops. Some on-chain analysis institutions often also need complete historical data to trace the flow of funds. At this time, one option is to query historical data from the Rollup operator of Layer 2. In this process, the Rollup operator can charge for data retrieval. Therefore, in the context of the Cancun upgrade, if the data storage and retrieval mechanism on Rollup can be effectively improved and relevant projects developed and laid out in advance, the possibility of project survival and further development will be greatly improved.

DApp track

Ecological value Discussion

Similar to Web2 applications, the role of DApp is to provide certain services to users on Ethereum. For example, Uniswap can provide users with real-time exchange of different ERC20 tokens; Aave provides users with over-collateralized lending and flash loan services; Mirror provides decentralized content creation opportunities for creators. But the difference is that in Web2, the main way for applications to make money is to attract more users to its platform through low-cost and high-quality services, and then use the traffic as the value to attract third parties to place advertisements and profit from the advertisements. However, the entire process of DApp maintains zero intrusion on users’ attention and does not provide any recommendations to users. Instead, it collects corresponding handling fees from a single service after providing users with a certain service. Therefore, the value of DApp mainly comes from the number of times users use DApp services and the depth of interaction during each interaction. If DApp wants to improve its own value, it needs to provide services that are better than similar DApps, so that more developers tend to use them. It operates instead of other DApps.

DApp track breakdown

Ether at the current stage DApps on Fang mainly focus on DeFi, GameFi, and SocialFi. There were some Gamble projects in the early days. However, due to the limitations of Ethereum’s transaction speed and the release of more suitable public chains such as EOS, Gamble projects are now gradually declining on Ethereum. These three types of DApps provide financial, gaming and social services respectively, and realize value capture from them.

DeFi

• Implementation principle: In essence, DeFi is one or a series of smart contracts on Ethereum. In the release stage of DeFi, relevant contracts (such as currency contracts, exchange contracts, etc.) need to be deployed on the Ethereum main network. The contracts realize the interaction between the DeFi functional module and Ethereum through interfaces. When users interact, they will call the contract interface to perform operations such as depositing, withdrawing, and exchanging coins. The DeFi smart contract will package the transaction data, interact with Ethereum through the script interface of the contract, and record the status changes on the Ethereum chain. In this process, the DeFi contract will charge a certain fee as a reward for upstream and downstream liquidity providers and as a profit for itself.

• Current situation: At the current stage of Ethereum, DeFi has an absolute advantage among DApps. In addition to cross-chain projects and Layer2 projects, DeFi occupies other seats in the top 10 DApps for contract assets on Ethereum. As of now, the cumulative number of DeFi users on Ethereum has exceeded 40 million. Although affected by the bear market, the number of monthly active users has experienced a decline from the peak of nearly 8 million in November 2021. However, as the market picks up, The current monthly user volume has also returned to about half of the peak, and is waiting for the next round of bull market to rise again. At the same time, the types of DeFi are becoming more and more diverse, and their functions are becoming more and more comprehensive. From the earliest currency-to-crypto transactions and mortgage lending to current leverage transactions, term purchases, NFT finance, flash loans, etc. The financial methods that can be implemented in Web2 have gradually been implemented in DeFi, and functions that cannot be implemented in Web2, including flash loans, have also been implemented in DeFi.

SocialFi

• Implementation principle: Similar to traditional design platforms, SocialFi also supports individuals to create content and publish the created content through the platform for dissemination and further attract fans to the account. Users can use the platform to Check out the content you need and get the services you need. The difference is that the content posted by users, the interaction records between content publishers and fans, and the information on the account itself are all decentralized and recorded through blockchain smart contracts, which means that the ownership of the information is returned to each individual account. For the SocialFi platform, the more people are willing to create and share content through its platform, the more revenue it can earn by providing these services. The cost of users interacting with the SocialFi platform minus the storage of account and transaction data The fee is the profit of the SocialFi project.

• Current situation: Although SocialFi’s UAW (User Active Wallet) seems to be comparable to DeFi at this stage, it often comes from some The project's airdrop expectations are very unsustainable. For example, friend.tech some time ago, the UAW volume after the boom was even less than 1,000. This can also be clearly seen from the comparison between DeFi and SocialFi outside the top 5. The fundamental reason is that SocialFi’s high service fees and inefficiency make it unable to bear the social attributes it should have and simply reduces it to a speculation platform.

GameFi

• Implementation principle: The implementation of GameFi is roughly similar to SocialFi, except that the application object becomes a game. At this stage, the mainstream way for GameFi project parties to make money is by selling in-game props.

• Current situation: If the project party wants to make more profits, it must attract more people to participate in the game. At this stage, there are only two things that can attract users to participate in games. One is the fun of the game, which drives users to purchase props in order to gain the right to participate in the game or have a better gaming experience. The other is the expectation of profit, and users believe that they can sell these items at a higher price in the future. The first model is similar to Steam, where the project team gets real money and the users get the enjoyment of the game. In another model, if the profits of users and project parties come from the continuous influx of new users, and once the new funds cannot offset the additional issuance of props by the project party, the project will quickly fall into selling, market expectations will decline, and sales will continue. The vicious cycle makes it difficult to achieve sustainable profits, which has the Ponzi attribute. Due to the limitations brought by blockchain fees and transaction speed, GameFi at this stage is basically unable to meet the user experience required by the former model and mostly adopts the second model.

The impact of Cancun upgrade on DApp

• Performance optimization: After the Cancun upgrade, more transaction data can be carried in one block, and more state changes can be achieved when corresponding to DApp. Calculated based on the average expansion of 8 blobs, the processing speed of DApp after Cancun upgrade can reach ten times the original.

• Cost reduction: Data storage cost is a fixed expenditure for the DApp project side, regardless of the DApp on Layer1 or Layer2. Directly or indirectly use Ethereum to record the status of the account in the DApp. After the Cancun upgrade, each transaction in the DApp can be stored in the form of Blob data, thus greatly reducing the running cost of the DApp.

• Function expansion: Limited by the high storage cost on Ethereum, the project team is deliberately reducing the cost of storage during the DApp development process. chain data. This results in many experiences that users can enjoy in Web2 cannot be migrated to DApps. For example, SocialFi cannot support the needs of video creation in Twitter, or even if it can, the data cannot enjoy the same security as Ethereum at the bottom layer. The interaction options for games in GameFi are often low-level and boring because every state change needs to be recorded on the chain. Through the Cancun upgrade, the project side will have more opportunities to try in the above aspects.

Different DApp tracks under Cancun upgrade

• DeFi: The drop in storage costs in the Cancun upgrade has a relatively small impact on DeFi, because all that needs to be recorded in DeFi is the current location of the user's assets in the contract. Status, whether it is pledge, loan or other status, the amount of data required to be stored is much less than the other two types of DApps. However, the improvement in Ethereum TPS brought by the Cancun upgrade can greatly promote arbitrage business with high transaction frequency in DeFi and leverage business that need to complete the opening and closing of positions in the short term. At the same time, the improvement in storage cost reduction that cannot be clearly reflected in a single currency exchange can also save a lot of handling fees in leverage and arbitrage transactions.

• SocialFi: The Cancun upgrade has the most direct impact on SocialFi performance. Through the Cancun upgrade, the ability of SocialFi smart contracts to process and store large amounts of data can be improved to provide a high-quality user experience closer to Web2. At the same time, basic operational interactions such as user creation, comments, and likes on SocialFi can also have lower costs, thereby attracting truly socially oriented long-term participants.

• GameFi: For the asset-on-chain games in the last bull market, the impact was similar to DeFi, and the storage cost dropped relatively. Small, but the increase in TPS provides conditions for high-frequency interaction in games, can improve the real-time interaction of games, and supports complex interactive functions that improve game playability. Full-chain games are more directly affected by the Cancun upgrade. Since all the logic, status, and data of the game are stored on the chain, the Cancun upgrade will greatly reduce the game’s operation and user interaction costs. At the same time, the cost of initial deployment of games will also be greatly reduced, thereby lowering the development threshold of games and promoting the emergence of more full-chain games in the future.

Opportunities for DApps under Cancun’s upgrade

• Dark Forest: Since the third quarter of 2023, perhaps because of doubts about the lack of decentralization of traditional asset-on-chain games, or simply because of the weakness of the traditional GameFi narrative, The whole chain of games started to explode. But for full-chain games on Ethereum, the transaction speed of 15 TPS and the storage cost of a single byte of CALLDATA field 16 gas greatly limit its development upper limit. The implementation of the Cancun upgrade can greatly improve these two problems. Combined with the continuous development of related projects in the second half of 2023, the Cancun upgrade may bring greater benefits to this track. Taking into account the head effect, Dark Forest is one of the few Fully On-Chain Games that has emerged from the bull market. It has a relatively complete community foundation and has not yet issued its own tokens. If the project can survive before and after the Cancun upgrade This idea should have a good trend.

Summary

The landing of Cancun upgrade will be Ethereum brings higher TPS and lower storage fees, but it also brings surge in storage pressure. The obvious ones that will be hugely affected are DA and Layer2 tracks. For the DA track, under the surge of storage pressure, Ethereum-specific DA will usher in huge benefits. Related projects such as EthStorage are worthy of attention. In contrast, DA projects that do not use Ethereum at all in the underlying data storage have not received much attention. Support from the Ethereum development community, although there are opportunities, requires more caution when dealing with specific projects. Since most of the ZK series Layer 2 have not yet introduced tokens, and Arbitrium has strengthened significantly in anticipation of the recent Cancun upgrade, if there is no big thunderstorm in Arbitrium in the future, Arb and its ecological related projects will be better than other Layer 2 projects. Cancun has more advantages in the upgrade. Due to the influx of a large number of speculators, there may also be certain opportunities at the node where the DYDX project is upgraded in Cancun. Finally, Rollup has natural advantages for storing historical transaction data related to Layer 2. If it comes to providing historical data access services, Rollup on Layer 2 will also be a good choice.

If you think about it from a longer-term perspective, the Cancun upgrade has created conditions for the development and performance of various DApps. In the future, we will definitely see Web3 projects evolve from interactive functions and The gradual approach to Web2 in terms of real-time performance brings Ethereum closer to the goal of becoming a world computer. Any pragmatic development project is worthy of long-term investment. During the recent gains in the market, Ethereum has been in a weak state relative to Bitcoin. While Bitcoin has recovered to nearly 2/3 of the previous bull market high, Ethereum has not yet recovered to 1/3 of the previous high. /2. The arrival of the Cancun upgrade may change this trend and bring a round of supplementary growth to Ethereum. After all, as a rare public chain that can maintain profitability and suffer from token deflation, there is indeed an underestimation of value at this stage.