Despite increasing competition among blockchains, the launch of the Dencun upgrade will aid Ethereum in “maturing” by reducing transaction fees and enhancing network scalability, according to a report by Grayscale Research.
Analysts believe the protocol is poised to benefit from the update, which, along with other factors, makes it more modular.
In 2023, the blockchain of the second-largest cryptocurrency by market capitalization underperformed compared to Solana and Avalanche, as it was in a “teenage phase,” according to Grayscale.
This phase was marked by low transaction speed and throughput with high costs for users. Dencun aims to address these issues by expanding the network’s modular structure and reducing gas fees.
“While it is unclear exactly how the upgrade will alter transaction costs for end users of L2, some estimate a reduction of more than 20 times. If all goes according to plan, Dencun will help narrow the gap between second-layer networks like Optimism and Arbitrum and solutions on Solana [in terms of fees],” experts highlighted.
Grayscale also acknowledges that Ethereum may be “the most secure, reliable, and largest smart contract platform by market capitalization.”
Analysts also noted the emergence of solutions like EigenLayer, which allow staking to be used as a security element across various chains.
In the future, Ethereum’s “security as a service” model could significantly enhance the ecosystem by extending solutions to additional networks, including bridges or oracles, the report states.
According to researchers, in 2023, the amount of ETH locked in staking grew by 83%, increasing the blockchain’s “security budget” to $82 billion.
However, analysts clarified that Ethereum needs to address the issue of validator concentration in the Lido liquid staking protocol, which accounts for 35% of the total ETH locked.
“We believe the Ethereum ecosystem still has a strong opportunity to solidify its position as a leading blockchain protocol. […] Upon reaching maturity, the smart contract platform may cease to be a winner-takes-all market,” the company concluded.
The Dencun launch on the mainnet is expected on March 13. A key component of the upgrade is EIP-4844, which includes the Proto-Danksharding option aimed at scaling.
On February 7, the Ethereum team successfully implemented the upgrade on the Holesky testnet.