The Rise of Ethereum Fees Ahead of Dencun Upgrade: What to Expect Next?
Recent data from IntoTheBlock, an on-chain analytics company, shows a substantial increase in network fees on the Ethereum blockchain, reaching levels not witnessed since May 2022.
Driving this surge is the growing speculative interest in meme tokens, a trend that has been gaining traction recently. The rally in Bitcoin to new record highs has encouraged investors to take more risks, particularly in meme tokens, which have seen a threefold increase on average in the past month.
This surge in speculation has resulted in Ethereum experiencing its highest fees in close to two years. Over the past week, the ETH network collected over $190 million in fees, marking an annual rate of over $10 billion for the first time since early 2022.
Additionally, Ethereum’s fee-burn mechanism has led to a reduction in ETH supply of around 33,000 ETH, equivalent to approximately $125 million.
While the rise in fees may benefit ETH holders, it has also made the network less accessible for many users. The average transaction fee on Ethereum’s mainnet reached $28 in the past week, making it prohibitive for certain transactions.
On the Arbitrum Layer-2 (L2) network, average fees have surpassed $1 for the first time since June 2022. However, relief is on the way as the upcoming Dencun upgrade for Ethereum is anticipated to ease the heightened gas prices on L2s.
Countdown to the Dencun Upgrade
Set for March 13, the Dencun upgrade, featuring Ethereum Improvement Proposal (EIP) 4844, will introduce proto-danksharding. This new transaction type, referred to as “blobs,” is expected to notably lower data availability costs for L2s.
Projections suggest that major L2s could witness fee reductions of at least 80% post the Dencun upgrade. Additionally, OP stack chains will undergo upgrades the following day, incorporating data blob functionality.
Forecasts indicate that fees for depositing USDC on platforms like Aave could drop to as little as $0.0091, representing a remarkable 27-fold decrease. According to Polymarket, the cost reduction for L2s might be even more significant, potentially being 60 times lower than current levels.
While there is some uncertainty about the exact extent of fee reductions resulting from the Dencun upgrade, it is evident that gas costs linked to meme token frenzies are likely to witness a notable decline on L2s soon.
This development is promising for Ethereum’s scalability and usability, heralding a more effective and user-friendly blockchain ecosystem.