Ether (ETH) price drops after Denkun update, as Ethereum Layer-2s experience lower transaction costs

The long-awaited Denkun Ethereum update finally went live on March 13, promising to improve the network's cost efficiency. Following the update, the price of Ether (ETH) fell sharply from a high of $4,082 to $3,932, according to data from CoinMarketCap.

Data from Cointelegraph Markets Pro and TradingView show that Ether continued its decline on March 14 and is down 3% in the last 24 hours to trade at $3,848 at press time.

Ethereum Layer-2s will see reduced transaction costs after the Denkun update.

The Ethereum network has undergone several upgrades, each aimed at improving the efficiency of the layer-1 blockchain or improving transaction speed, reducing gas fees, or changing the consensus mechanism. This improves the value of the network in the long run.

“Denkun will change how Ethereum developers build smart contracts, leading to more secure and user-friendly applications,” Safe co-founder Richard Meissner told Cointelegraph in an email.

Independent investor VirtualBacon commented on the success of Denkun's upgrade, which aims to “reduce transaction costs on Layer-2 networks by 75%, reshaping the potential of the ecosystem”.

Ethereum's layer-2 network Starknet acknowledges that this goal has been achieved on a layer-2 scale protocol: “Among Validity Rollups, Starknet accounts for the largest share of L1 data availability costs, making it the biggest beneficiary of this update.

Thanks to this, we have seen a huge reduction in gas bills of over 90%.

Starknet shared the above chart on the X social media platform showing transaction fees on Layer-2s such as Starknect, OP mainnet, Base, zkSync and Zora.

This was reiterated by market analyst Psquare Daily, “Ethereum Layer-2 (L2) protocols have seen significant reductions in transaction fees, with reductions of up to 99%.

According to data from Dune, average gas bills on Starknet have fallen to $0.04 from around $6 on March 1 before Dune went live.

Related: Dencun is about payment stabilization, not reductions – Oil founder

The average payout on Base fell to $0.03 from roughly $1.50, while Arbitrum fell to $0.04 a penny. The average payout on zkSync and Zora also fell.

Dankun introduced a number of Ethereum reform proposals, including EIP-4844, also known as proto-danksharding, which aims to reduce layer-2 transaction fees and increase data access via blobs.

Historical Effects of Ethereum Updates on the Price of Ether

Historically, Ethereum upgrades have had little impact on the ETH price.

In the week leading up to the April 2021 Berlin reform, Ether rallied 7.5 percent. On April 14, 2021, ETH traded at $2,043, and the price increased 3.% to $2,520 on April 15, 2021, the revision date.

In the year Ahead of the August 2021 London update, the smart contract's token price traded at $2,724 on August 4, rising 3.4% to $2,821 when the update went live. ETH then rose 30% again to $3,191 at the end of that week.

The June 30, 2022 Gray Glacier update reduced the price by 3.8% from $1,098 to $1,057. During that week, ETH dropped from $1,275 to $1,043.

In the week leading up to the “merger,” a hard fork that saw Ethereum transition from a proof-of-work consensus mechanism to a staking algorithm, ETH surged by 20%. On the integration date, September 15, 2022, Ether fell sharply from $1,635 to close the day at $1,472. The price continued to decline steadily throughout that week to close at $1,325, representing a weekly decline of 25%.

This week, as the denkun is implemented, ETH has been falling, and if more headwinds add to the selling pressure, as the spot Ethereum ETF hopes to decline, the price could sink further.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.