Ethereum’s Denkun update reduces transaction fees for L2s

A week after its launch, Ethereum's latest update seems to be meeting expectations and in some cases exceeding them.

Denkun launched on March 13, promising to usher in a new era of fast and cheap transactions. Ethereum has historically struggled to increase the speed of its base layer in line with demand, so Denkun shifted focus with the help of 2SS.

According to Brian Gallagher, the founder of Partition Blockchain, the update is not a minute as competition from rival blockchains could erode Ethereum's market dominance.

“It's time to launch the Ethereum Denkun update. [couldn’t] Wait no more,” Gallagher told Cointelegraph. “It's undeniable that Solana is growing its market share away from Ethereum, especially with its new token launch, DEX on Chain [decentralized exchange] Swaps and NFT [nonfungible token] Places where retailers can have fun”.

Gallagher added, “It's simply too expensive to do on-chain transactions on Ethereum, so options like Solana are stepping up to the occasion.”

As Gallagher points out, the comparison of payments is currently not favorable for Ethereum. Common fees on Ethereum range from $1-$20. This is in stark contrast to Solana, where the fee is a fraction of a cent. As of March 5, fees on Ethereum have risen above $30.

Ethereum fees are a long-term problem.

Ethereum scaling issues are not new. The case intensified when transaction fees fell from under $1 to $5 in September 2020, then over $20 in late 2021 and into 2022. On April 30, 2022, the average wage hit an all-time high of $197.

Previous improvements to the Ethereum network have attempted to improve the speed and scalability of the Ethereum base layer. The most significant of these mergers occurred on September 15, 2022, and completed the transition of Ethereum from proof-of-work to proof-of-stake.

The integration may have made Ethereum more energy efficient, but if there were small discounts for transaction fees, they weren't sustainable. In March 2023, fees began to rise once again.

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Denkun is different. Rather than trying to make the Ethereum base layer more scalable, Denkun will focus on improving the relationship with 2s like Arbitrum and Optimism. In theory, Denkun's upgrades should encourage users to divert traffic from Ethereum layer 1 and distribute that traffic to other networks.

While Denkun is still in its infancy, early feedback is encouraging. He promised to drop Denkun on layer 2s for a 10x fee. The data from Dune's analysis shows that it has achieved that goal, and in some cases, exceeded it. As with L2 fees, transaction costs on Optisism and Arbitrum are now less than $0.01.

Reasons to celebrate Dencun

With Denk out of the gate, there is a palpable sense of excitement among many in the Ethereum community.

Nick Johnson, founder and lead developer of the Ethereum Name Service (ENS), is among those applauding the development.

Johnson told Cointelegraph: “The Denkun update ushers in a new era for Ethereum, with economic sustainability. For too long, Layer 2 developers have faced expensive transaction fees that limit access to the network. The ENS developer team is looking forward to improved access to Ethereum.”

As for the layer that Johnson mentioned, the sound from their camp was evident.

Arbitrum took to X to declare Dencun, “One of the biggest improvements to support Layer 2 by expanding Ethereum,” while Optimism said, “Today is going to be a good day.”

The overall sense of positivity seems justified as Denkun reduced transaction costs by over 90%.

Do more

Denkun may have succeeded in his initial goals, but the market will decide what happens next. For Denkun to truly succeed, Arbitrum, Optimism, zkSync Era, Loopring, Polygon and others need to move users away from the Ethereum base layer.

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Early signs are encouraging here as well. Data from GrowThePie shows that trading volume on Arbitrum has increased by 145% in the past seven days, while optimism has increased by 144%. Initial transaction volume increased by 203% over the same period.

“It's going to be on DeFi,” says Gallagher as he runs through Denkun. [decentralized finance] And how this upgrade will increase speed and reduce costs. If it can't cut costs significantly, I believe it will continue to grow market share faster and more affordable at other chains.

Gallagher's cautionary note is a cautionary note, given that Denkun has yet to experiment with everything the crypto market can throw at him. But for now, Ethereum's latest update looks like a job well done.