Ethereum, L2s, AA wallets, cross-chain bridges, and decentralized storage networks will all benefit from the Cancun upgrade.
Author: NingNing
The biggest beneficiary of the Cancun upgrade is $ETH, with a heavy allocation. L2 projects include $ARB and $OP. Leading cross-chain bridges include $RUNE, $AXL, $STG, $CELER, and $SYN. AA wallets include $TWT, $SFP, and $C98. Decentralized storage networks include $FIL and $AR.
What investment opportunities does the Ethereum Cancun upgrade hold?
The Cancun upgrade (Dencun) is a major mainnet upgrade for Ethereum following the successful deployment of the Shanghai upgrade in March this year, which gave rise to a wave of super rallies for LSD and LSDfi. Investment targets such as $LDO, $RPL, $SSV, $LBR, and $PENDLE became Alpha opportunities that outperformed the market.
Therefore, it is natural for the market to anticipate that the Cancun upgrade will also bring some Alpha investment opportunities.
But before discussing what Alpha investment opportunities there are, let's first briefly understand the Cancun upgrade.
What is the Cancun upgrade?
The upcoming Cancun upgrade is divided into two parts: Deneb focuses on the consensus layer (CL), while Cancun targets the execution layer (EL).
According to a statement provided by Ethereum core developer Tim Beiko, the Cancun upgrade includes five key Ethereum Improvement Proposals (EIPs) aimed at expanding data storage and reducing costs. They are:
- EIP-4844: Sets the stage for full implementation of Danksharding to enhance scalability.
- EIP-1153: Reduces on-chain data storage costs and optimizes block space.
- EIP-4788: Improves the structure of cross-chain bridges and staking pools.
- EIP-5656: Makes minor code modifications to the Ethereum Virtual Machine (EVM).
- EIP-6780: Removes SELFDESTRUCT, which could terminate smart contracts.
The most important feature of this upgrade is EIP-4844, which introduces Proto-Danksharding, a transitional phase for the full implementation of Danksharding. It is expected to significantly reduce gas fees and increase transaction throughput by utilizing data "blobs."
Blobs, or "binary large objects," are a data type used to store large data.
The implementation of EIP-4844 involves adding a new TX type, blob TX, dedicated to storing L2 Rollup data on the Ethereum mainnet Beacon chain consensus layer. After being stored for 3 weeks, the blob is discarded to decentralized storage networks such as IPFS or Web3 data service providers like Alchemy.
Each blob has a storage space of 128KB, and initially, EIP-4844 sets 4 blobs per block, which will be expanded to 64 in the future.
What are the effects of the Cancun upgrade?
The Cancun upgrade brings substantial benefits to the Ethereum mainnet, including:
Enhanced scalability: The introduction of Proto-Danksharding will help process a larger volume of transactions at a faster speed, strengthening Ethereum's position as a DA layer and security guarantee for L2 projects.
Reduced gas fees: By utilizing data "blobs" and implementing EIP-4844, the Cancun upgrade can significantly reduce gas fees for L2 interactions.
Strengthened security: With EIP-6780, the network's security infrastructure will be enhanced to protect user data and assets.
Efficient data storage: EIP-1153 will optimize data storage on the Ethereum chain, improving operational efficiency and cost-effectiveness, which is a boon for L2 projects that rely on optimized data management.
Enhanced cross-chain bridge connectivity: Through the EIP-4788 upgrade, interoperability between different chains will be smoother and more secure.
Technological innovation: The minor code modifications introduced by EIP-5656 lay the foundation for future technological advancements and may drive innovation in L2.
Which sectors will benefit from the Cancun upgrade?
Ethereum: The Cancun upgrade will make the Ethereum network more adaptable, secure, and user-friendly, consolidating its position in the Web3 space.
L2 projects: The Cancun upgrade will significantly reduce gas fees for L2 interactions and speed up transaction confirmation, greatly enhancing user experience.
AA (Account Abstraction) wallets: Infrastructure optimization will also benefit the application layer, and AA wallets are direct beneficiaries of the Cancun upgrade. The upgrade will greatly reduce gas fees for creating and interacting with AA wallets, improving transaction confirmation speed (a major pain point for AA wallets) and enhancing user experience.
Cross-chain bridges: Cross-chain bridges will mainly benefit from the EIP-4788 upgrade, and EIP-4844 will also reduce the cost of using cross-chain bridges.
Decentralized storage networks: After the deployment of EIP-4844, blob data will be permanently stored in decentralized storage networks such as IPFS, which will be a gold mine for MEV bots, market makers, data companies, and other institutions, bringing new value to decentralized storage networks.
How to build a Cancun upgrade investment portfolio?
First of all, I do not believe that just because the Shanghai upgrade brought about a rally, the Cancun upgrade will definitely bring a new rally.
The viability of a Cancun upgrade rally is constrained by factors such as the Federal Reserve's monetary policy cycle, Bitcoin halving cycle, seasonal cycles, and risk events.
The core skill in building an investment portfolio is to find a balance between odds and risk-reward ratio that suits oneself.
When building a Cancun upgrade investment portfolio in September, the decision should be based on a win rate of approximately 50% and a risk-reward ratio greater than 3.
The available investment targets for building a Cancun upgrade investment portfolio include:
The biggest beneficiary of the Cancun upgrade, $ETH, with a heavy allocation.
L2 projects such as $ARB and $OP, which are consensus beneficiaries of the Cancun upgrade. They have a higher degree of Price In compared to other targets.
Leading cross-chain bridges such as $RUNE, $AXL, $STG, $CELER, and $SYN, which are currently overlooked by the market. If the gas fees and confirmation times for cross-chain bridges improve beyond expectations after the Cancun upgrade, this sector may potentially yield Alpha returns.
AA wallets such as $TWT, $SFP, and $C98. It is expected that AA wallets' interaction experience will also benefit from the Cancun upgrade, and there may be improvements that exceed market expectations. Unfortunately, wallets have not received much attention from mainstream funds, so a light allocation is recommended.
Decentralized storage networks $FIL $AR. The market has almost completely overlooked the fact that decentralized storage networks will also benefit from the Cancun upgrade, and it is uncertain whether the market will ultimately recognize and accept this fact.
Everyone can choose investment targets that suit their own situation and create a portfolio. If you understand coding, you can also use effective portfolio optimization methods to adjust the allocation of the portfolio.
Quoted articles:
https://datawallet.com/crypto/ethereum-cancun-upgrade-explained
https://medium.com/@hyperoracle-zh/%E5%9F%BA%E4%BA%8E-halo2-%E7%9A%84%E4%BB%A5%E5%A4%AA%E5%9D%8A-kzg-%E4%BB%AA%E5%BC%8F%E5%AE%A2%E6%88%B7%E7%AB%AF-fdc7527d0c1b
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