Opinion: Cancun upgrades, profitable from investment point of view

This article will focus on the trading opportunities offered by the Cancun upgrade and detail why I find it interesting.

Written by: Pansophichad, anonymous analyst

Compiled by: Yvonne

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 rollups 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 transact on L2 such as Arbitrum or ZkSync, which are then 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.

Blob is short for "binary large object", and transactions carrying blobs are unique in that these types of transactions do not 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 whatever it is called);

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 the current state, RU has paid a total of 15.26KETH in gas fees, a large part of which is due to Arbitrum and Optimism.

• YTDArbitrum paid ~7.3KETH
• YTDOptimism paid ~5.02KETH

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 improves 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 for Arbitrum and Optimism remains the same, neither RU's profitability will increase.

The market and market participants are irrational, especially in the crypto market, I think people may not understand what 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, Arbitrum and Optimism both generate profits.)

*Arbitrum generated about 2.9KETH ~ 5.2 million USD.

• Optimism generated about 2.0KETH ~ 3.7 million USD.

*Note: This does not include off-chain costs. *

I think other market participants will be buying 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.