As speculators focus on the price fluctuations of ETH while anticipating a successful Shanghai upgrade, the scheduled upgrade has a deeper positive effect on the trading experiences on L2s and Alt L1s, according to Kevin Feng, Head of DeFi at WOO Network.
The most recent development was the successful launch of the Shanghai Capella upgrade on the Sepolia testnet, which is a necessary precursor to the eventual mainnet deployment. If all goes according to plan, the Shanghai upgrade will allow validators to withdraw ether when the update is complete on the mainnet. The short-term effect of this would be a dip in ETH prices but would stabilize on stronger valuations in the long term. Blockworks reported that Ethereum developers pushed back the upgrade to early April, noting that the set date for Goerli testnet deployment is March 14, but “[the] mainnet and staked ether withdrawals will have to wait until April.”
“ETH prices aside, the Shanghai upgrade will make DEXes even more attractive than CEXes. The Shanghai [upgrade] paves the way for EIP-4844 (now named the Deneb Upgrade), which will be the next in line. Deneb will enable Proto-danksharding to drastically reduce the gas fee on L2s,” said Feng.
According to Ethereum.org, the main feature of proto-danksharding is a new transaction type, called a blob-carrying transaction. A blob-carrying transaction is like a regular transaction, except it also carries an extra piece of data called a blob. Blobs are extremely large (~125 kB) and can be much cheaper than similar amounts of call data. However, blob data is not accessible to EVM [Ethereum Virtual Machine] execution; the EVM can only view a commitment to the blob. Because validators and clients still have to download full blob contents, data bandwidth in proto-danksharding is targeted to [sic] 1 MB per slot instead of the full 16 MB. However, there are nevertheless large scalability gains because this data is not competing with the gas usage of existing Ethereum transactions.
Feng said, “With the implementation of the Proto-Dank Sharding, the scalability of Ethereum will drastically improve. There will be more daily user activities that will happen on L2s and the Ethereum PoS mainnet will serve more as a settlement layer with the utmost decentralization and security.”
Feng said that expected developments are aligned with WOOFi’s strategy of improving the trading experience on L2s and Alt L1s. WOOFi is a decentralized application (DApp) for swapping popular digital assets and earning income by staking and tapping the WOO Network’s deep liquidity.
With the reduced cost and more trading activities moving to L2s, WOOFi is well-positioned to support more assets with its highly efficient sPMM v2 liquidity pools. In addition, the multichain deployment will enable WOOFi to help project tokens avoid worsened execution due to liquidity fragmentation.
Feng added that there would be more adoption of LSD following the upgrade several protocols have shifted a lot of its liquidity and incentives to L2. For example, Lido, Rocketpool, and StakeWise have begun offering “liquid staking” minted tokens to fill the gap.
The Ethereum Shanghai upgrade marks Ethereum’s complete transition to a fully-functional proof-of-stake network and the protocol's first major upgrade since 'The Merge' in 2022.
There are three testnets to be launched before Shanghai goes live, Sepolia being the second. The final testnet upgrade will occur to Goerli and it would be the biggest of the three as it mimics the main Ethereum blockchain activity most closely.
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