Ethereum's upcoming Cancun upgrade: What impacts will it have on the market?

Author: Revelo Intel

Translation: TechFlow

The long-awaited Ethereum Dencun upgrade has finally been scheduled—and it's imminent, set for March 13. This upgrade will enhance the performance of existing Layer 2 (L2) networks, while the number of L2s continues to grow with the addition of new chains such as Mode Network, Blast, and Fraxtal.

Combined with the current excitement around restaking and the potential for an ETH ETF, Dencun provides a bullish catalyst for Ethereum. Ethereum has somewhat lagged in this cycle but recently crossed the $3,000 threshold, rising approximately 8% last week, while BTC remained in a sideways trading range.

Impact of Dencun on Restaking

Scheduled to go live on the Ethereum mainnet on March 13, Dencun carries significant implications for Ethereum, $ETH, and its associated networks and tokens. The upgrade includes nine EIPs (Ethereum Improvement Proposals), with EIP-4844 being by far the most important.

EIP-4788 aims to replace custom oracles used by liquid staking solutions, reducing complexity and risk. The upgrade is designed to lower trust assumptions for staking pools and restaking arrangements. The importance of EIP-4788 should not be underestimated, as it touches on liquid staking and restaking—both of which have grown significantly in importance on the Ethereum network since Dencun was first proposed. While EIP-4788 affects application-layer user experiences, other components of the Dencun upgrade introduce only minor technical fixes.

Currently, user applications on Ethereum are in a somewhat awkward position, as more dApps choose to deploy on L2s, especially when mainnet fees rise. Nevertheless, through the introduction of restaking and LRT products, many dApps have seen exponential growth in their TVL on the Ethereum mainnet. This includes liquidity restaking services, leveraged restaking, accumulating restaking points via yield strategies, LRT lending, and more. While LSTs were the dominant narrative during more bearish periods, attention has clearly shifted toward restaking assets.

EIP-4788 embeds beacon block roots into the EVM by storing roots on the Ethereum mainnet and within smart contracts. This could enhance the security, credibility, and efficiency of restaking. Liquid staking will also benefit, as the reliance of LST providers on oracle networks will be eliminated.

Impact of EIP-4844

Undoubtedly the most discussed aspect of Dencun, EIP-4844 introduces data blobs, laying the foundation for future sharding and potentially boosting Layer 2 performance. Naturally, this event—and even its anticipation—could significantly impact the price of ETH and related L2 tokens. Also known as the Proto-Danksharding upgrade, EIP-4844 will mark a substantial reduction in operational costs for rollups. Specifically, it paves the way for a seamless transition toward full Danksharding in the future Ethereum protocol architecture. Key benefits include reduced rollup data storage fees, support for blob-carrying transactions, and forward compatibility.

Forward compatibility refers to a system’s ability to remain compatible with future upgrades—an essential feature for a platform like Ethereum, which continues to evolve through ongoing development.

Blobs (binary large objects) are essentially data chunks associated with transactions, distinct from regular transaction data. They are stored on the Beacon Chain and subject to significantly lower gas fees. Soon, the amount of data stored per block will increase up to tenfold due to blobs. Blobs are stored separately from other independent data.

Blobs are designed to reduce data availability (DA) costs—a major pain point in recent months, highlighted by the emergence of services like EigenDA and Celestia. Blobs could reduce L2 gas fees by up to 90%, as previously, around 90% of L2 gas costs were composed of Ethereum mainnet posting fees, which will now be replaced by a dynamic pricing model based on blob supply and demand.

Due to its association with the Dencun upgrade, there has also been discussion about minor changes at the validator and node client levels to enhance block space efficiency. Support for this idea from Justin Drake and Vitalik suggests a strong foundation for success.