The Cancun-Deneb (Dencun) Upgrade: Its impact on the Ethereum ecosystem and on-chain automation market

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PowerPool

5 min readApr 2, 2024

On March 13, the Ethereum network underwent its largest hard fork since the Shanghai upgrade, known as Cancun-Deneb. This upgrade combined improvements to the execution (Cancun) and consensus (Deneb) layers of the network. The primary goal of this upgrade was to enhance Ethereum’s scalability, security, and usability.

One of the key impacts of this upgrade was on Layer 2 (L2) Ethereum rollups, with the introduction of Proto-Danksharding and new type-3 blob-carrying transactions. These changes significantly reduced L2 gas costs associated with Ethereum fees, making transactions more affordable and efficient.

In this article, we will delve into the components of the Cancun-Deneb upgrade, explore its effects on the PowerAgent network, and analyze how the reduction in gas costs on Ethereum rollups could impact the on-chain automation segment. Additionally, we will provide our insights on the future relevance of automation in the evolving landscape of web3.

Firstly, let’s give some insights into the upgrade itself.

The Dencun upgrade

The Cancun-Deneb (Dencun) upgrade included major improvements to both Ethereum’s consensus and execution layers aiming to enhance network scalability and significantly reduce the gas cost of transactions on L2 scaling solutions.

Proto-Danksharding

By far the most anticipated part of Dencun was Proto-Danksharding (EIP-4844) that is a prototype for the future Danksharding design.

Proposed by Dankrad Feist, Danksharding is a design that splits blocks into specific shards and introduces more block space for L2s to process transactions

Proto-Danksharding represents a crucial initial step towards achieving true sharding. Its primary objective is to offer a temporary scaling solution and ensure that transaction costs remain affordable for users. Proto-Danksharding does not implement sharding in the traditional sense, as the network remains undivided into separate shards.

EIP-4844 introduces a new transaction type called a “blob-carrying transaction,” which enables the transfer of an extra data field — a “blob” — within transactions. Each blob is constrained to 128 KB, and initially, during the Proto-Danksharding phase, transactions are limited to 6 blobs*, effectively adding approximately 2 MB of block space.

*In the future, the maximum number of blobs in a transaction is expected to be increased to 256.

The introduction of data blobs in transactions was designed to increase the amount of data that can be included in a block and boost the Ethereum network’s throughput allowing for easier inclusion of data from users and dApps and lowering transaction gas costs.

Proto-danksharding lowered L2 Rollup gas fees by 90–99%

The primary beneficiaries of Proto-Danksharding are Layer 2 Rollups. They now gained the ability to utilize data blobs (instead of calldata) for posting transaction data commitments, making it much easier to store. Previously, over 90% of Layer 2 user fees stemmed from Ethereum gas fees [1].

The update substantially reduced the gas costs on rollups. Using Arbitrum as an example, the approximate fee paid by user decreased from ~$0.40 to $0.02–0.04:

*https://fees-growthepie.streamlit.app/*

Other EIPs part of the Dencun upgrade

In addition to EIP-4844, the Dencun upgrade included a number of Ethereum Improvement Proposals:

EIP-1153: Introduces transient storage opcodes, which are more efficient to use and aim to make transactions more cost-effective
EIP-4788: Improves trust assumptions of staking pools, restaking constructions, smart contract bridges, MEV mitigations, and more.
EIP-5656: Provides an efficient EVM instruction for copying memory areas
EIP-6780: Changes the behavior of the SELFDESTRUCT opcode, aiming to reduce vulnerabilities in smart contracts
EIP-7044: Allows for signed validator voluntary exits to be valid indefinitely allowing for simpler staking operation designs
EIP-7045: Increases the max attestation inclusion slot
EIP-7514: Changes the rewards curve for validators to update growth rate from exponential to linear
EIP-7516: Introduces the BLOBBASEFEE opcode allowing contracts to access the current base fee for blobs

PowerAgent users benefit from the update

The recent Dencun upgrade has significantly impacted PowerAgent on the Arbitrum network, leading to a noticeable decrease in median transaction fees.

Since March 14th, transaction fees have dropped from 0.0001 to 0.00003 ETH and further decreased to less than 0.00001 ETH by March 19th, as illustrated below:

The substantial reduction in transaction fees on Arbitrum by approx. 90% means that PowerAgent users can now leverage automation services at a significantly lower cost, rendering the platform even more appealing to users.

Let’s delve into the before-and-after scenarios of gas costs for some key strategies that can be implemented using PowerAgent, both pre and post-March 19th upgrade:

1. Limit Order:

Before Upgrade: Gas cost was approx. 0,000037 ETH, equivalent to $0.13 at an exchange rate of 1 ETH = $3500
After Upgrade: The gas cost significantly decreased to 0,0000037 ETH, translating to a mere $0.013

2. DCA strategy transaction:

Before Upgrade: Gas cost stood at around 0,00004 ETH, amounting to $0.14 when 1 ETH valued at $3500
After Upgrade: The gas cost is now at 0,000004 ETH, a noticeable decrease that now costs only $0.014 per transaction

3. CDP protection:

Before Upgrade: Gas costs were at 0,000026 ETH, which is $0.09 at 1 ETH = $3500
After Upgrade: Post-upgrade, this transaction now costs 0,0000026 ETH in gas, amounting to only $0.009 and making CDP protection accessible to all users

Note that Keeper compensations consist of three main components: (1) the fixedReward, (2) a gas-dependent term, and (3) a Keeper’s stake-dependent term.

So, the end user pays 0.0002 ETH including the fixed reward for each execution. This value could be decreased in the future based on the network statistics.

Learn more about PowerAgent compensation calculations and overall architecture design in this article.

Implications for the web3 automation market

The significant decrease in gas costs has opened up new possibilities for users seeking to automate on-chain actions. Why perform everything manually when you can streamline the whole process for fractions of a dollar?

However, with transaction costs now reduced to negligible amounts, developers can redirect their focus from gas expenses to delivering superior products that offer enhanced user experiences.