Dencun Upgrade Goes Live – ETH Drops Below $4,000

Happy Dencun! 🎉

After counting down the days until Ethereum’s newest update, the world’s second-largest blockchain network has successfully launched and implemented a significant software upgrade aimed at reducing costs for users of its ecosystem. Here are some of the important recent updates to Ethereum and how the market reacted before and after each upgrade.

 

Source: X

The Dencun upgrade officially went live on March 13th, 2024, and is expected to have a profound impact on the end-user experience and drive the development of new applications and free services.

Still confused what Dencun is? Read all about it here.

• Ethereum’s much anticipated upgrade went live on the mainnet around 2pm UTC with no hitch.

• It was programmed to add a new layer of technology known as EIP-4844, known as proto-danksharding. 

• This innovation focuses on reducing transaction fees on Layer 2 solutions, a major problem that has long affected Ethereum’s scalability.

• The upgrade incorporates nine Ethereum Improvement Proposals (EIPs). 

• It has combined advancements from the Cancun and Deneb upgrades to optimise transaction processing and consensus mechanisms.

Markets React

As we already know, the most noticeable benefit on Dencun will be the reduced costs for L2s to post data on Ethereum. This will result in significantly lower gas fees on L2s, potentially up to 90% cheaper based on current activity levels.

 

Source: Dencun Upgrade

The price of ether (ETH) – the native cryptocurrency of the Ethereum blockchain – was little changed in the wake of the upgrade. Over the past 24 hours, ETH price was down 0.5% to $3,968. Cryptocurrencies adjacent to the Ethereum network offered a mixed performance on Wednesday after the upgrade went live.

• Native tokens of Polygon and Arbitrum added 8%-10% right before the upgrade, retracing some of the advances by the time the upgrade kicked in.

• Both MATIC and ARB are still up 6%-7% over the past 24 hours.

• Starknet (STRK) had been falling until the upgrade activated, then shot up almost 10%, erasing earlier losses.

• Gaming-focused L2 Immutable X (IMX) ended a short-lived advance to a decline of 6%.

• As for Celo (CELO), it slid 7%.

Despite many's expectations after the upgrade, ETH has not increased past $5,000. In fact, Ethereum plunged below $4,000 and is currently trading at $3,982.51. According to CoinGecko data, after the launch of Dencun, the price of ETH slumped by 3.2% from $4,076 to $3,949.

Is It a Pattern We Are Seeing?

In the week leading up to the highly-anticipated “Merge” that took place in September 2022, and which transitioned ETH from PoW to PoS algorithm, Ethereum traded above $1,700 – with a high of $1,779 on September 11, 2022. On the day of the Merger, ETH started trading at $1,635, fell 11% to $1,472, and steadily declined in the days that followed. By the end of September, ETH was trading at $1,329.

Now, while many developers are celebrating Dencun for its potential to accelerate Ethereum towards improved affordability, others worry that it risks setting the ecosystem down a path that could, in the long run, come back to bite it. ETH has higher fees than many competing networks, and has consequently struggled because of that. Dencun doesn’t do much to address the issues – or at least not directly.

It is important to note that despite a slight drop in Ethereum price, the sentiment for $5,000 prevails as derivatives data shows strength. ETH futures and options open interests are at an all-time high.