In simpler terms, the introduction of blobs through the Dencun upgrade aims to decrease transaction costs and enhance efficiency by efficiently delivering substantial data packets to recipients without causing congestion on the main network.
This upgrade is particularly advantageous for layer-2 scaling solutions such as Arbitrum, Optimism, and Polygon zkEVM, which utilize rollup technology. Rollups group transactions, handle them off-chain and subsequently submit the consolidated data to the Ethereum main chain for verification. The Ethereum main chain, however, frequently experiences congestion, leading to increased costs for submitting data to the main chain. Blobs are expected to alleviate this congestion and contribute to cost savings in the transaction process.
Following the upgrade, rollups have the potential to store their transaction data using blobs, leading to increased space availability on the main net and enabling the processing of more transactions at a reduced cost.
However, it’s important to note that Polygon zkEVM operates on the principle of “guilty until found innocent.” In this context, rollup operators are required to furnish proof of validity to complete transactions on the Ethereum network. This process, which demands significant resources, is anticipated to persist and contribute to the overall transaction cost even after the Dencun upgrade.
In contrast, Optimistic rollups operate on the “innocent until proven guilty” principle, only needing to produce a fraud-proof flag when a transaction is challenged. Consequently, they are poised to gain advantages from the anticipated decrease in transaction costs following the Dencun upgrade.
Katie Talati, Director of Research at Arca, highlighted this dynamic, stating, “The upcoming Ethereum Dencun upgrade will decrease costs for layer 2’s to post data back to the Ethereum mainnet. Although Polygon will benefit from the upgrade, other L2s like Arbitrum and Optimism, which use optimistic rollups, will see more significant cost reductions, which has caused these L2s to rally.” This insight underscores the potential for optimistic rollups to experience more substantial cost reductions compared to other layer-2 solutions, contributing to increased market momentum for these platforms.
Katie Talati provided further insight, stating, “Most of the cost for optimistic rollups comes from posting transaction data back to Ethereum (which is what Dencun will reduce), but they hardly post fraud proofs. On the other hand, Zk rollups post fraud proofs far more frequently and, therefore, would not see the benefits of lower transaction data costs.”
In this context, the distinction lies in the usage patterns of optimistic rollups, which primarily incur costs in posting transaction data back to Ethereum, and zk rollups, which frequently post fraud proofs. The expected reduction in transaction data costs with the Dencun upgrade is particularly advantageous for optimistic rollups. However, Polygon, known for posting more data to Ethereum, may stand to benefit more substantially from the changes introduced by Dencun.
Key departure
The decision of former Polygon President Ryan Wyatt to transition to Optimism could be a contributing factor to the observed lack of a significant uptrend in MATIC. Katie Talati pointed out that Wyatt’s departure last year, where he assumed the role of the head of business development for Optimism, is perceived by many as a substantial setback for Polygon’s growth efforts. It is believed that Wyatt played a crucial role in securing significant partnerships for Polygon.
When Wyatt’s departure was disclosed on July 7, the same day Marc Boiron was announced as the new CEO, the MATIC price experienced a 2.5% increase. This reaction in the market suggests that the news of Wyatt leaving and Boiron taking over had an impact on investor sentiment and the valuation of MATIC at that time.
Arbitrum: The Preferred Blockchain for Traders
According to data from DefiLama, Arbitrum currently holds the position as the fourth-largest chain, boasting a 24-hour trading volume of $420 million. Following closely is Polygon PoS, ranking sixth with a trading volume of $179 million, and Optimism securing the seventh position with a trading volume of $133 million.
When considering the total value locked in decentralized finance (DeFi) protocols, Arbitrum leads the way with $3 billion in assets. Optimism comes in second with $884 million, while Polygon ZkEVM is positioned twelfth with a total value locked at $14.7 million. These statistics highlight the significant presence and activity of these platforms in the decentralized finance space.
Kenny Hearn, Chief Investment Officer at SwissOne Capital, identified Arbitrum (ARB) as the most formidable competitor to MATIC, highlighting that Arbitrum has become the preferred blockchain for traders and is leading the surge in DeFi trading volumes. According to Hearn, MATIC was perceived as overvalued at the beginning of the ongoing crypto market uptrend, and other layer-2 coins are now catching up.
Examining the numbers, Hearn pointed out that the total value locked (TVL) for the top 10 applications on each chain adds up to $1.9 billion for Arbitrum and $800 million for MATIC. Moreover, comparing their Fully-Diluted Valuations (FDV) of $20 billion and $10 billion, respectively, provides a more contextually sensible perspective on their relative valuations. This analysis suggests that Arbitrum’s current standing in terms of TVL and FDV may contribute to its perceived strength compared to MATIC in the market.
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