After the Dencun upgrade, will Ethereum gas fees really decrease? (2024)

By Jason Jiang, OKG Research

The Dencun upgrade was activated on the Ethereum mainnet on March 13th, marking another key milestone in the development history of Ethereum. However, compared to previous major upgrades, perhaps due to the recent overheated market, the Dencun upgrade has not attracted enough attention. Coupled with the rapid rise of the Bitcoin and Solana ecosystems, Ethereum seems to have inadvertently fallen into a “siege” again.

1. After the Dencun upgrade, will Ethereum gas fees really decrease?

Due to the recent strong performance of the market, the on-chain activity of the Ethereum network continues to rise. One direct manifestation of the increase in onchain activity is the continuous rise in transaction fees on the Ethereum network. According to OKLink data, the average increase in gas prices for Ethereum transactions over the past two months is close to 236%, with the average transaction fee exceeding 20 Gwei in the past week. On March 6th, the average transaction fee for the day even reached 31.22 Gwei, setting a new high since June 2022.

Faced with gas fees of tens of dollars, many people are hoping that the upcoming Dencun upgrade can improve this phenomenon — but in reality, there is a clear misunderstanding. The core of the Dencun upgrade is the EIP-4844 proposal, which introduces additional Blob data storage space to reduce the data storage costs of L2 (data storage costs previously accounted for over 90% of L2 transaction gas fees), thereby reducing the gas fees of Ethereum L2, rather than directly reducing the gas fees of the Ethereum mainnet.

This means that only users conducting transactions on the L2 layer can enjoy the gas fee reduction brought about by the Dencun upgrade, and other Ethereum mainnet users will not have a “direct positive impact” as a result. For the Ethereum mainnet, the gas consumption on the L2 layer currently accounts for about 10% of the daily gas consumption of Ethereum mainnet. Even if this part of the gas fees can be reduced by more than 10 times as expected by the market, it may still be difficult to have a significant impact on the gas fees of the Ethereum mainnet in the current hot market, let alone reduce Ethereum transaction fees to $0.01 as suggested by Eric.eth (although in Eric’s view, “L2 is Ethereum”).

For Ethereum L2, although it is inevitable that gas fees will decrease after the upgrade, considering the intensified competition for Blob space by L2 project parties after the upgrade and the expected surge in overall L2 activity, we believe that the positive impact of the Dencun upgrade on its gas fee reduction may be difficult to meet market expectations in the long term (the current market generally believes that after the Dencun upgrade, the gas fees of Ethereum L2 will be reduced by 10 times or even more).

However, even so, the Dencun upgrade is still the most anticipated event for Ethereum in 2024. Because it not only marks the beginning of the “the Surge” era in Ethereum’s roadmap, but also will attract more users and projects to enter Ethereum L2, becoming an important turning point in the outbreak of L2 ecology in this cycle.

2. ETH spot ETF may not bring enough “surprises”

Another recognized benefit is the anticipated approval of Ethereum spot ETF. Compared with the high-profile process of applying for Bitcoin spot ETF, the Ethereum spot ETF has not caused much stir. On the one hand, the short-term prospects for the approval of Ethereum spot ETF are not clear. A senior ETF analyst at Bloomberg recently reduced the likelihood of Ethereum spot ETF approval in May from 60% to 30%. In addition to the unclear distinction between Ethereum itself as a security or a commodity, the currently highly popular Ethereum staking service may also hinder the SEC from making a decision: in February last year, the SEC ordered the crypto exchange Kraken to stop providing staking services in the United States, and a few months later sued Coinbase Global, claiming that its staking plan was equivalent to unregistered securities.

「Although the annualized return rate of staking continues to decline, as of March 2024, the total staking amount on the Ethereum network has exceeded 40 million, with a staking rate as high as 34%. The continuous increase in the staking rate reflects the long-term confidence of stakers in the Ethereum ecosystem.」

On the other hand, although we believe that the SEC will eventually approve the application for Ethereum spot ETF under pressure, it may not bring enough “surprises” compared to the Bitcoin spot ETF. The performance of the Ethereum futures ETF launched in October last year is still impressive: within a few hours of listing, the trading volume was only a few million dollars, sharply contrasting with the rapid generation of hundreds of millions of dollars in trading volume after the opening of Bitcoin futures and spot ETFs. Such “bleak” performance makes it difficult for us to maintain high expectations for the popularity of Ethereum spot ETF after its launch, but these factors will not prevent Wall Street from offering ETF products.

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