Ethereum Dencun Upgrade: Overall implications and how it could affect the ETH staking sector

Daniejjimenez
SafeStake
Published in
6 min readMar 11, 2024

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2024 marks a crucial milestone in the evolution of Ethereum, one of the most important and influential blockchains in the crypto/web3 world. Along with events such as the next Bitcoin halving, the crypto community eagerly awaits Dencun, the next Ethereum update scheduled to happen on March 13.

This advancement holds significance not just for cryptocurrency aficionados but also for the entire ETH staking industry, which has successfully garnered large scale interest this past year. Currently, over 25% of all ETH is staked, equating to a market cap of almost $97 billion.

Source: Staking Rewards

Since SafeStake is a DVT (Distributed Validator Technology) platform focused on decentralized ETH staking, we thought it would be a good idea to explore what’s included in the Dencun update with a specific focus on how it could affect Ethereum staking.

Proto-danksharding (EIP-4844)

One of the key ingredients in the Dencun update is the Ethereum Improvement Proposal (EIP)-4844, also known as Proto-danksharding. This proposal is designed to address Ethereum’s scalability challenges by introducing a new transaction type that accepts blobs of data that persist for a limited time period.

Proto-danksharding aims to improve the efficiency of the Ethereum blockchain and reduce transaction costs by increasing data space and, subsequently, the speed in finalizing transactions. The new data, represented as blobs, relies on clever new cryptography to ensure that it is available long enough for use in L2s.

Why will Proto-danksharding decrease transaction costs? The easier it is for a cumulative packet to access the data it needs, the faster and cheaper it will be to verify transactions and report them to the Ethereum mainnet.

Once EIP-4844 is implemented on the core network and the availability of data (called blobspace) is unlocked for use by L2s, the cost of L1 cumulative transactions is expected to decrease by at least 20x.

By facilitating a shift towards more efficient and cost-effective Layer 2 solutions, EIP-4844 could drive the further development and mainstream adoption of Ethereum-based decentralized applications (dApps) and DeFi platforms, which will directly benefit ETH stakers.

Currently, the L2 sector is worth an estimated $28.5B, a number that could rise dramatically if transaction fees and network efficiency significantly improve following the implementation of EIP-4844. This, of course, would make staking on Ethereum more attractive to investors.

Source: L2Beat

EIPs relevant to ETH staking

In addition to EIP-4844, several other Ethereum improvement proposals included in Dencun will have a direct impact on the ETH staking sector. Among these proposals are EIP-7044, EIP-7045, EIP-4788, and EIP-7514, each of which addresses specific aspects of the staking process and validator operation on the Ethereum network.

EIP-7044

EIP-7044 aims to make voluntary exits perpetually valid, which will improve the user experience for ETH stakers by allowing them to exit the network independently of their validators at any time without having to rely on operators to enforce their request.

This enhancement could improve network decentralization and reduce downtime penalties when validators are offline, as automated solutions could handle voluntary exits from the Ethereum consensus layer.

EIP-7045

EIP-7045 expands the maximum inclusion space for Beacon Chain attestations, which means that validators will have up to 64 slots to include attestations and receive rewards for doing so.

By increasing the Beacon Chain certification window, the LMD-GHOST (Latest Message Driven Greedy Heaviest Observed Sub Tree) algorithm used by Ethereum to choose canonical blocks can more quickly and efficiently determine the canonical block.

This EIP has the potential to reduce block confirmation times and latency for validators and is expected to provide greater flexibility for them to influence Ethereum’s consensus, even if some are censored initially.

EIP-4788

The goal of EIP-4788 is to lower the trust assumptions of staking pools and restaking arrangements, and will introduce a protocol-level consecrated oracle that transmits Ethereum’s consensus state to the core network.

Technically, this enhancement is a new smart contract in the Ethereum execution layer that stores a history of the exposed parent (previous) Beacon block roots in each execution block, allowing any smart contract in the core network to query and obtain information about Ethereum’s consensus state in a trust-minimized way.

To explain further, currently, users must have an oracle to obtain up-to-date and reliable information on the amount of LST tokens they have available. However, once EIP-4788 is implemented, smart contracts and protocols in the core network (L1), such as liquid staking and restaking protocols, will no longer need an oracle to obtain information about the consensus state of the network to function properly.

This improvement is likely to have a positive impact when the LST feature becomes available to users by improving the efficiency of the capital involved in staking ETH with LSTs. Furthermore, by embedding Beacon block roots into the EVM, and by using the same logic described concerning staking pools above, EIP-4788 could enhance the security, trustworthiness, and efficiency of restaking protocols.

From Safestake’s perspective, one of our distinguishing features has always been that our validation process does not rely on an oracle to monitor operators.

EIP-7514

This EIP will change the validator dropout limit per epoch on the Beacon Chain, which is designed to slow the growth of the validator pool and prevent system overload.

With over 964,000 validators currently active on Ethereum, the validator entry queue has shortened considerably. However, if interest in ETH staking continues to expand, there is no doubt that these parameters could be a point of tension for node operators.

Source: beaconcha.in

It is important to note that EIP-7514 will make this change to the dropout limit on entry to Ethereum’s set of active validators and not to validators in the exit queue.

As the developers behind this EIP have indicated, this measure is expected to only be a temporary solution until a more optimal one is found that allows for an increase in the amount of ETH staked without compromising Ethereum’s ability to effectively finalize transactions.

Dencun benefits

The implementation of Dencun and the various enhancements it contains has the potential to provide several significant benefits to the ETH staking industry.

First, the sector represented by L2s is undoubtedly the biggest beneficiary of this planned upgrade. Rollups spend around $1,000 per megabyte (at current prices) to ensure that their transaction data is available to all their nodes and validators via what is known as call data. It is the cost of publishing call data that makes up the bulk of L2 transaction fees.

Dencun is great news for users of L2s because it brings EIP-4844 and a new data availability system (blobs and blobspace) that promises a large reduction in the cost to publish call data, which will equate to significantly lower transaction costs.

Second, Proto-danksharding could make the staking process more cost-effective and efficient for participants by reducing transaction fees and improving the scalability of the Ethereum network, especially in L2s.

The other EIPs (EIP-7044, EIP-7045, EIP-4788, EIP-7514) all have specific functions that are designed to benefit ETH stakers and the Ethereum staking industry as a whole.

We believe that Dencun and its included EIPs will further increase participation in the Ethereum network via staking and lead to mainstream adoption by increasing the network’s efficiency, decentralization, and security.

About SafeStake

SafeStake is a pioneering technology company focused on revolutionizing Ethereum staking. With its cutting-edge, decentralized Distributed Validator Technology (DVT), SafeStake provides an ultra-secure, fault-tolerant environment for Ethereum validators, maximizing staking rewards and minimizing penalties. SafeStake is committed to driving the growth, innovation, and decentralization of the Ethereum network while ensuring the security and prosperity of its participants.

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