The upcoming Cancun upgrade is set to transform Ethereum, promising to boost Layer 2 (L2) speeds by 10x—potentially even 100x—while slashing costs. This article breaks down what the upgrade means and highlights the L2 projects poised to gain the most.
Impact of the Cancun Upgrade
At the heart of the Cancun upgrade are "blob transactions." Here's how they change the game: Currently, L2s bundle transaction data and post it periodically to Ethereum's mainnet (L1), a process that incurs high gas fees. These costs are then spread across L2 users to make individual transactions cheaper.
After Cancun, this data will be stored in "blobs." Think of blobs as Ethereum's new, affordable external storage—much cheaper and more spacious than traditional on-chain storage. This will drastically cut the cost of each L2 transaction, potentially by an order of magnitude, paving the way for L2s to achieve higher throughput at a fraction of the cost.
The Cancun upgrade represents a pivotal moment for the Ethereum ecosystem for several key reasons:
Faster Transactions & Higher Throughput: L2s using Optimistic Rollup technology will see a dramatic leap in speed and capacity without sacrificing security. This will help ease Ethereum's congestion and make the entire ecosystem run more smoothly.
Lower Fees: As Ethereum's usage grows, so do fees. The Cancun upgrade will significantly reduce L2 transaction costs, making Ethereum more accessible to a much wider audience.
Better User Experience: With faster speeds and lower costs, interacting with DeFi protocols or trading NFTs on L2s will become quicker and more affordable, improving the overall experience.
New Possibilities: The upgrade will unlock novel use cases for Ethereum L2s. The combination of higher throughput and lower fees will attract more developers to build on L2s, accelerating ecosystem growth.
In short, the Cancun upgrade is a turning point that will expand the Ethereum ecosystem, boost its competitiveness, and draw in more users and applications.
L2 Projects Likely to Benefit
Arbitrum and Optimism
As the current leaders in Ethereum L2, Arbitrum and Optimism boast the highest Total Value Locked (TVL) and largest user bases. Their mature ecosystems offer a relatively low-risk profile with steady growth potential.
Boba and Metis
These early forks of Optimism offer technical performance on par with top L2s. However, their ecosystems are still developing, with fewer deployed applications, presenting a different growth trajectory.
Loopring, Immutable, dYdX
These are pioneering application-specific zkRollup projects. In a landscape still waiting for native tokens from general-purpose zkRollups, they stand out as compelling opportunities within the zk L2 space.
Polygon
While not an L2 itself, Polygon is a hub for ZK scaling solutions, including the Polygon zkEVM which has already launched its mainnet and is evolving rapidly.
SHIB and CULT
Both SHIB and Cult.DAO have announced plans to launch their own Layer 2 networks this year. Successful deployment and scaling could elevate their ecosystems, potentially positioning them alongside narratives like YFI and FXS in the L2 conversation.
Outlook for the Cancun Upgrade
The core of the Cancun upgrade is EIP-4844, which introduces blob transactions. This change is a major scalability leap for Ethereum L2s, significantly boosting their throughput and speed. As a result, Ethereum will be far better equipped to support high-demand applications like DeFi and NFTs, driving greater adoption and potentially higher valuations.
Allen, founder of Ebunker, shared his perspective: "Following the Shanghai upgrade, Cancun is the most anticipated event of 2023 for Ethereum. Expected to complete this autumn, it will deliver concrete, substantial performance gains for L2s. While full sharding was delayed, this upgrade is essentially its practical alternative finally arriving."
The upgrade also includes other important enhancements. EIP-4788, for instance, will expose the consensus layer state within the execution layer, enabling more trust-minimized access for staking pools, restaking protocols, and MEV applications. EIP-6914 will allow the reuse of validator indices for those who have fully exited the network, providing added efficiency.
Additionally, Cancun proposes changes for backfilling historical Beacon Chain data and creating new "historical summaries." While this may increase storage requirements, it lays crucial groundwork for Ethereum's future evolution and its ability to support increasingly complex applications.
Finally, proposals like PR 3175 and EIP-6493 will further bolster Ethereum's security and consistency, providing robust, long-term support for the entire ecosystem.
In summary, the Cancun upgrade is a major milestone. It significantly enhances Ethereum's performance, security, and scalability, delivering the improved infrastructure needed for the next generation of applications.