Ethereum (ETH) Fees Soar as Countdown to Dencun Upgrade Begins: What to Expect

Ethereum (ETH) Fees Soar as Countdown to Dencun Upgrade Begins: What to Expect

According to the on-chain analysis firm In the blockThe Ethereum network has witnessed a significant increase in network fees, reaching levels not seen since May 2022.

According to the on-chain analysis firm In the blockThe Ethereum network has witnessed a significant increase in network fees, reaching levels not seen since May 2022.

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One of the main catalysts behind this rise is the speculative frenzy surrounding meme tokens, a trend that has gained momentum in recent times.

Bitcoin’s rise to new all-time highs has encouraged investors to place riskier bets, particularly in meme tokens, which have witnessed an average three-fold rise over the past month.

This increased speculation has resulted in Ethereum experiencing its highest fees in almost two years. The ETH network surpassed $190 million in fees last week, translating to an annualized rate of over $10 billion for the first time since early 2022.

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Additionally, Ethereum’s fee burning mechanism has led to a reduction in ETH supply by approximately 33,000 ETH, equivalent to around $125 million.

While this increase in fees may be beneficial for ETH holders, it has made the network less accessible for many users. The average transaction fee on the Ethereum mainnet reached $28 last week, making it impractical for certain transactions.

On the Arbitrum Layer-2 (L2) network, average fees have surpassed the dollar for the first time since June 2022. However, relief is on the horizon as Ethereum’s upcoming Dencun upgrade is expected to alleviate the increase in gas prices in L2.

Dencun update countdown begins

Scheduled for March 13, the Dencun update, which includes Ethereum Improvement Proposal (EIP) 4844, aims to introduce proto-danksharding. This new type of transaction, known as blobs, is expected to significantly reduce data availability costs for L2s.

Market projections indicate that major L2s could see rate reductions of at least 80% following the Dencun upgrade. Additionally, OP stack chains will receive updates the next day, adding data blob functionality.

Estimates suggest that fees for depositing USDC on platforms like Aave could drop as low as $0.0091, representing a staggering 27x decrease. According to Polymarket, the cost reduction for L2 could be even more substantial, potentially reaching 60 times less than current levels.

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While there remains some uncertainty regarding the exact magnitude of the fee reductions resulting from the Dencun upgrade, it is clear that the gas costs associated with the meme token frenzy will likely see a significant decline in L2s shortly.

This bodes well for the scalability and usability of Ethereum, paving the way for a more efficient and accessible blockchain ecosystem.

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