Original post by Pansophichad, anonymous analyst
Original source: Twitter
Compilation: Yvonne, MarsBit
Note: The original text comes from @ Pansophichad's long tweet, compiled by MarsBit.
The Cancun-Deneb upgrade, also known as the Cancun upgrade , is scheduled for November 2023. The upgrade aims to enhance the scalability, security and usability of the Ethereum network.
From a technical point of view, this is interesting.
From an investment point of view, profitable.
In this article, I will avoid going into the technical details of the upgrade. Instead, I want to focus on the trading opportunities it presents and detail why I find it interesting.
The upgrade contains about 14 different EIPs, one in particular stands out: EIP-4844, commonly known as "Proto-Danksharding." It is an expansion plan for Ethereum before implementing danksharding.
Ethereum has adopted a Rollup-centric roadmap, positioning itself increasingly as the settlement layer for Rollup built on top of its infrastructure. Thus, both Optimistic and zk- Rollup publish their transaction batches on layer 1 Ethereum.
The part about batching transactions is interesting, because this part will be adjusted in the upgrade. Currently, users conduct transactions at L2 such as Arbitrum or ZkSync, which are subsequently bundled and validated on Ethereum. This diagram is oversimplified:
In the current setup, L2 submits data to Ethereum as "CallData". However, L2 must compete for block space with users executing transactions on the mainnet. EIP-4844 introduces a new primitive called "blob-carrying transaction" that aims to address this challenge.
Blobs are short for " binary large objects ," and transactions that carry blobs are unique in that these types of transactions don't have to compete with "regular" transactions for block space, and "stick" with regular transactions. This diagram is also oversimplified:
Blobs don't have to compete with regular transactions in Ethereum because they have their own fee market per EIP-1559, so it represents the current fee market times 2 (multidimensional fee market).
Just to clarify, the previous tweet was oversimplified and I left out a lot of complex parts.
Keep in mind that there will be two fee markets:
1. Regular Fee Market; This is the market we currently use to pay for regular transactions.
2. The "blob market" (or to call it otherwise);
Here, Rollup (RU) will have to compete to have their transactions included in blocks.
These developments, and several other notable ones, which I won't dwell on for now, will bring down fees significantly. But what about its economic impact on RU?
In its current state, RU has paid a total of 15.26K ETH in Gas fee, a large part of which is due to Arbitrum and Optimism.
YTD Arbitrum paid ~ 7.3K ETH
YTD Optimism paid ~ 5.02K ETH
These two fees accounted for approximately 80.73% of the total fees paid by L2. With fewer gas fees that need to be paid to Ethereum, this begs the question of how it can increase the profitability of these two RU users.
In fact, it does not directly increase the profitability of RUs. However, RU users will be greatly affected by this change, as they will experience a significant reduction in gas fees and thus be the ultimate beneficiaries of this upgrade.
The ambiguity here is that both Arbitrum and Optimism charge transaction fees on top of the fees that need to be paid to L1. If the number of transactions in Arbitrum and Optimism remains the same, neither RU will increase in profitability.
The market and market participants are irrational, especially the crypto market, I think people may not understand what the hell is going on here, but only: "RU fees are going down, ARB and OP are the largest RU, so this will increase profitability ability."
(Remember, both Arbitrum and Optimism generate profits.)
Arbitrum generated about 2.9K ETH ~ $5.2 million.
Optimism generated about 2.0K ETH ~ $3.7 million.
Note: This does not include off-chain costs.
I think other market players are going to buy ARB and OP so I try to get in earlier than they do. Is there anything else I should consider? Hmmm... what's the unlock timeline for these two tokens?
According to @Token_Unlocks data, the next unlocking of ARB will be on May 23, 2024, and the unlocking rate is as high as 11.12%.
According to the same source, after June 1, 2023, the OP will not have any (substantial) tokens unlocked.
