Ether Price Drop after Dencun Upgrade: Lower Layer-2 Transaction Costs

The highly anticipated Dencun Ethereum upgrade was launched on March 13 to improve the cost-effectiveness of the network. As a result, the price of Ether (ETH) dropped from $4,082 to $3,932. The decline in price continued, with a 3% drop in the last 24 hours, bringing ETH’s price to $3,848. The Dencun upgrade aims to reduce transaction costs on layer-2 networks of the Ethereum network, which is expected to reshape the ecosystem’s capacity.

The Dencun upgrade is set to revolutionize how Ethereum developers build smart contracts, making them more secure and user-friendly. The layer-2 network Starknet has benefited greatly from the upgrade, with a drastic reduction in gas fees of more than 90%. This has led to significant drops in transaction fees on various layer-2 protocols, including Starknet, OP mainnet, Base, zkSync, and Zora, with reductions of up to 99%.

Data from Dune shows that gas fees on Starknet have dropped from around $6 to $0.04 after the Dencun upgrade. Similar reductions in fees have been observed on other layer-2 networks like Base, Arbitrum, zkSync, and Zora. The Dencun upgrade introduced several Ethereum Improvement Proposals (EIPs) to reduce layer-2 transaction fees and improve data availability.

Historically, Ethereum upgrades have had minimal impact on the price of ETH. There have been instances where upgrades led to price rallies. For example, before the Berlin upgrade in April 2021, the price of ETH rallied by 7.5%. The London upgrade in August 2021 also saw a price increase of 3.4%. The Grey Glacier upgrade in June 2022 resulted in a 3.8% price drop.

As the Dencun upgrade is implemented, ETH’s price is currently trending lower. If more selling pressure, such as the decreasing hope of a spot Ethereum ETF, adds to these headwinds, the price could potentially sink even further.