Improvement Process: Proto-Danksharding

MetalSwap Improvement Process [BLOG] (1)

Throughout 2024, the much-awaited Proto-Danksharding update, associated with EIP-4844, is expected to arrive. This will improve not only the scalability of Ethereum's main layer but also, and more importantly, the scalability of Layer 2 solutions like Optimism and Linea, on which MetalSwap is already running his Smart Contracts.

In today's article, we aim to provide a general overview of this update, trying to understand the benefits it brings and the changes it could make across the entire EVM ecosystem. 

So, without further ado, let's proceed!

The Problem of Ethereum

Since its inception, Ethereum has prioritized the development of security and decentralization features, often neglecting scalability. This choice has borne fruit, and today, Ethereum is the most important blockchain in the realm of DeFi, both in terms of Total Value Locked (TVL) and the number of daily transactions, as it's the most secure and decentralized blockchain in the DeFi space.

However, the time has come to improve this aspect, and Proto-Danksharding aims to increase the scalability of the EVM ecosystem without reducing the aforementioned features of decentralization and security.

Currently, the ETH blockchain can handle 15 transactions per second, while its Layer 2 solutions average around 100 transactions per second. These numbers, especially during euphoric market phases and future mass adoption, are not enough, leading to the well-known congestion phases of the blockchain.

In the last bull market, a period in which the Ethereum blockchain experienced massive usage partly due to the explosion of the NFT world, it was not uncommon to pay over $150 for a simple token transfer transaction.

Obviously, this is not an acceptable solution if we want to embrace mass adoption and integrate billions of people into this ecosystem.

A Roadmap Based on Layer 2

A primary solution, initially promoted by Vitalik and then by Ethereum blockchain developers, was the integration of what are called Layer 2 solutions, i.e., secondary blockchains that delegate security to the mainnet while focusing on offering greater scalability for users.

Solutions like Optimism, Arbitrum, or Linea are just a few examples of these Layer 2 solutions that, in fact, manage to offer significantly lower transaction costs compared to Ethereum's mainnet. For example, if transferring a token on the mainnet might require $20 in a standard usage phase, the same type of transaction on a Layer 2 solution like Optimism could cost just $0.10, which is extraordinary, but still not enough.

Indeed, Layer 2 solutions have not yet experienced moments of true euphoria and it is possible that they may suffer the same problems encountered by the mainnet during the last bull market. Moreover, even if this does not happen, the current costs are still too high for achieving mass adoption of the blockchain, and this is where the EIP-4844 update comes into play.

Introduction to EIP-4844

The necessary step required before implementing this technical update was to transition ETH to a Proof of Stake block validation mechanism, abandoning the old Proof of Work algorithm. As we all know, this was achieved through the famous Merge, which occurred back in September 2022. Specifically, the Merge led to the creation of two layers: the execution layer and the consensus layer.

Without delving too deep into the technical details, it suffices to know that completing this update was necessary before proceeding towards a revolution like the one to be introduced by Proto-Danksharding, and this is why there was such a delay in having a scalability update on this blockchain.

The goal of ETH developers has always been to perform a shard of the main blockchain, and this was the initial plan thought to work for ETH. However, over time it became clear that an intermediate step was necessary and this is precisely where Proto-Danksharding comes into play.

The idea behind EIP-4844 is to introduce a new type of transaction that the mainnet will be able to process. Specifically, this new transaction will consist of data blobs, a technique that compresses the data to be uploaded to the blockchain in a more efficient manner, so that it occupies less space within the blockchain.

The aim of this update is to bring the layer 2 from an average of 100 tps to 1000 tps.

The data blobs will also have a limited lifespan of a few weeks, after which they will be deleted. This contributes to not overly burdening the blockchain even in future forecasts.

Benefits of this Upgrade

As we know, Layer 2 solutions to date have been able to offer this increased scalability thanks to data compression techniques related to transactions, specifically the most used techniques are Optimistic Rollups or Zero Knowledge Rollups.

EIP-4844 will enable Layer 2 to perform further data compression, through these blobs, which will allow more transactions to be included within a block.

As mentioned, expectations are to see a 10x increase in the data compression capacity within Layer 2, which will correspond to a relative decrease in transaction costs on these secondary blockchains.

If currently, sending a token on OP's Layer 2 costs about $0.10, it is expected that after the update the same transaction could cost $0.01.

This will obviously make the use of these Layer 2 solutions even more attractive compared to the ETH mainnet, which could offload work from the main blockchain and thus result in a slight decrease in transaction costs on this blockchain as well.

Greater scalability will most likely lead to greater use of these Layer 2 solutions, and thus dApps like MetalSwap, which for the first time offer hedging swaps within decentralized finance, can only benefit from this update, as they will see increased scalability in the use of their product.

A Bright Future for the Ethereum Ecosystem

As mentioned earlier, ETH and the ecosystem it created have always positioned themselves as the most decentralized and secure solutions, leaving behind features such as scalability and transaction execution speed.

This update is the beginning of a revolution that will finally allow the EVM ecosystem to compete on this point of the famous trilemma, and if everything works as expected, it is very likely that Ethereum will further solidify its position as a leader in the DeFi world.

MetalSwap, thanks to this update, will be able to offer its Hedging Contract with greater efficiency, which will only increase the long-term use of the product.


-The DeFi Foundation


✎ What is MetalSwap?

MetalSwap is a decentralized platform that brings Hedging Contracts on financial markets with the aim of providing coverage to those who work with digital asset and an investment opportunity for those who contribute to increase the shared liquidity of the project. Allowing the protection for an increasing number of operators.

With MetalSwap we enable Hedging Contracts on the DeFi field, AMM style.