The Rise of Liquid Staking Tokens
Liquid Staking Tokens (LSTs) have been gaining momentum as we approach the highly anticipated Ethereum upgrade, known as Cancun-Deneb or "Dencun" for short. This upgrade is expected to introduce a mechanism known as "blob-carrying transactions," which has been a significant factor in the recent traction gained by liquid staking providers, especially Lido. These providers offer users greater liquidity and flexibility in their staking activities, leading to outsized gains for protocols and assets linked with staked ETH.
The Role of Cancun-Deneb Upgrade
The Cancun-Deneb upgrade is expected to stimulate the growth of LST platforms and protocols, which have already accrued $20 billion in total value locked, representing some 10.3 million ETH. Lido, in particular, has captured a significant market share, boasting roughly 7.5 million ETH staked on its platform.
The Impact of Liquid Staking Providers
Liquid staking providers like Lido DAO have seen their governance tokens jump about 11% and 24% on 1-week and 2-week time frames respectively. Other tokens, such as Frax Share (FXS) and the staking pool known as Rocket Pool (RPL), have also seen increases over the past week.
The Cancun Upgrade and Its Potential for Growth
The next update to Ethereum, EIP-4844, also known as proto-dank sharding, will allow for larger "blobs" of data to be transmitted to Ethereum nodes for a limited duration. This is expected to reduce layer-1 data costs significantly, leading to higher profit margins for L2 sequencers. Sequencers, who receive and order transactions to reduce the load on the main Ethereum blockchain, will be able to operate more efficiently and profitably.
The Role of Sequencers in the Upgrade
Sequencers play a crucial role in the Ethereum ecosystem. With the upcoming Cancun upgrade, they can anticipate considerably higher profit margins as L1 data costs are set to decrease substantially. This efficiency and profitability will likely stimulate further growth in the Ethereum staking landscape.
The Transformation of Ethereum's Staking Landscape
The Ethereum staking landscape has seen a significant transformation following the Shanghai hard fork. This upgrade introduced the ability to withdraw staked ETH, leading to a surge in deposits. Interestingly, the demand for withdrawals has been minimal, with the volume of ETH staked surpassing or equalling exchange inflows post-upgrade.
The Future of Ethereum with Cancun Upgrade
The Cancun upgrade is set to bring several changes to the Ethereum network, including the deactivation of the SELFDESTRUCT opcode and the introduction of transient storage.
The Deactivation of SELFDESTRUCT
The deactivation of the SELFDESTRUCT opcode is an attempt to pave the road for a stateless Ethereum. This concept, which dates back to a post by Ethereum co-founder Vitalik Buterin in October 2017, refers to shifting the responsibility for storing the blockchain's full state to more specialized "archival nodes." This would allow a much larger set of full nodes to store much less, furthering the goal of network decentralization.
The Introduction of Transient Storage
EIP-1153 proposes new, cost-effective ways to temporarily store data in Ethereum smart contracts, improving communication between different parts of a transaction. This update would support various applications, such as enhanced security features and streamlined token approvals.
The EVM Object Format (EOF)
The EVM Object Format (EOF) is an extensible and versioned container format for the Ethereum Virtual Machine (EVM) that introduces a one-time validation during contract deployment. It aims to improve code and data separation, making it easier to introduce new features or deprecate old ones.
Conclusion
The upcoming Cancun upgrade promises to bring significant changes to the Ethereum network, particularly in the realm of staking. With the introduction of blob-carrying transactions, the deactivation of SELFDESTRUCT, and the introduction of transient storage, Ethereum staking is set to reach new heights. These changes, coupled with the potential for increased efficiency and profitability for sequencers, make the future of Ethereum staking an exciting prospect.Â
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