From "King of the Forks" to "Institutional Wonderland"? Can Pectra's Upgrade Reshape the Ethereum Ecosystem Landscape

Original Article Title: "From 'King of Forks' to 'Institutional Playground'? Can the Pectra Upgrade Reshape the Ethereum Ecosystem Landscape?"

Original Article Author: Ac-Core, YBB Capital Researcher

1. Background of the Pectra Hard Fork

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The Ethereum Pectra upgrade went live on March 5th, combining the Prague and Electra updates to optimize Ethereum's execution layer and consensus layer. The Pectra fork is a major upgrade to the Ethereum network aimed at improving ETH staking experience, enhancing Layer 2 (L2) scalability, expanding network capacity, and introducing 11 Ethereum Improvement Proposals. The upgrade process was first implemented on the Holesky testnet on February 24, 2024, with the final deployment of Pectra to the mainnet planned for April 8, 2024, subject to successful upgrades on the Holesky and Sepolia testnets.

Pectra follows the Dencun upgrade implemented in March 2024. According to ethereum.org (see Reference 1), the Ethereum Pectra upgrade is expected to integrate several key Ethereum Improvement Proposals that collectively address challenges in scalability, security, and user experience. The Pectra upgrade will be implemented in two phases:

Phase 1: Mid-March 2025

● L2 Blob Capacity Doubling: Increasing the Blob capacity per block from 3 to 6 to reduce congestion and lower fees;

● Account Abstraction: Allowing Gas fees to be paid with stablecoins like USDC and DAI, providing more payment flexibility;

● Increased Validator Staking Limit: Raising the staking cap from 32 ETH to 2,048 ETH to enable large-scale staking operations;

Phase 2: End of 2025 or Early 2026

● Implementation of Verkle Trees: Replacing Merkle-Patricia with a more efficient data structure to improve data storage and synchronization;

● Peer Data Availability Sampling (PeerDAS): By allowing nodes to validate transaction data without storing all data, it improves scalability.

II. Specific Content of the 11 Improvement Proposals for the Pectra Upgrade

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Ethereum's Pectra upgrade consists of 11 EIPs (Ethereum Improvement Proposals). These proposals are aimed at enhancing various aspects of the network, such as scalability, security, account abstraction, and the validator staking mechanism. The following will outline the key proposals of the improvement proposals (different researchers have differing opinions on the key proposals, the following are solely personal views on important proposals) and the impact of the proposals on Ethereum's development.

1. EIP-7702: Account Abstraction

· Content: This proposal allows Externally Owned Accounts (EOAs) to perform some smart contract functions, making account operations more flexible, such as batch transactions and sponsoring gas fees. This greatly enhances wallet functionality, enabling it to support more operation modes.

· View: This proposal undoubtedly makes account abstraction wallets more powerful. They can now not only perform regular transfer operations but also execute some advanced functions similar to smart contracts, such as batch transactions or having someone else pay your gas fees. (Related EIP-7840 provides a broader account function extension, which may allow users to customize more complex account behaviors)

2. EIP-7251: Validator Staking Increase

· Content: The maximum staking balance for validators is increased from 32 ETH to 2048 ETH. This can streamline validator management, allowing for a larger scale of validator nodes, thus reducing management complexity.

· View: The significant increase in the staking amount undoubtedly increases Ethereum's centralization. The more concentrated the nodes, the easier it is for malicious behavior, while also raising the profitability difficulty of the Ethereum market. Node operation and MEV arbitrage costs will significantly increase, making it no longer suitable for the "average person" and more suitable for institutions.

3. EIP-7002: Withdrawal Improvement

· Content: Allows execution layer addresses to trigger withdrawal operations, reducing the trust assumptions between the consensus layer and execution layer, simplifying the withdrawal process, and enhancing the network's flexibility.

· Viewpoint: Mainly aimed at making the withdrawal process simpler, eliminating the need for complex steps. Validators can withdraw more directly from staking, reducing intermediate steps.

4. EIP-6110: Validator Activation Delay Optimization

· Content: Validator activation delay for deposits has been reduced from about 9 hours to about 13 minutes, greatly improving validator participation efficiency and flexibility.

· Viewpoint: The speed at which new validators join the network has significantly increased, reducing costs from a storage management and contract storage perspective, shrinking from the previous 9 hours to just 13 minutes. To some extent, this also enhances Ethereum's resource utilization.

5. EIP-7691: Data Block Extension

· Content: Increased data block capacity by 50%, meaning the network can process more transactions, enhancing overall scalability and transaction throughput.

· Viewpoint: Ethereum's block size has increased by 50%, allowing the network to process more transactions, especially during peak periods, reducing the likelihood of network congestion and increasing transaction speed. (Related to EIP-7742, which can dynamically adjust the Blob's capacity, adjusting the maximum and target Blob quantity per block, especially for L2)

6. EIP-7516: Improving MEV Transparency

· Content: Providing more information and transparency about the maximum extractable value of MEV to help users and developers better understand and monitor MEV activities on the blockchain.

· Viewpoint: Increased transparency on MEV, as well as increased arbitrage difficulty as with EIP-7251, greatly ensures transaction fairness at a higher cost.

7. EIP-7549: Gas Fee Adjustment

· Content: By adjusting the Gas fee structure, further optimizing the network's fee mechanism, alleviating network burden during peak hours, making transaction fees more reasonable.

· Viewpoint: Adjusting the Gas fee structure means that even when the network is busy, transaction fees will be more stable, reducing the situation where users have to pay high fees during peak periods. (EIP-6046 also involves adjusting the Gas fee structure, but EIP-7549 proposes a more dynamic and flexible fee adjustment scheme)

8. EIP-7685: Governance Mechanism Optimization

· Content:  Optimize network governance to enhance decentralized governance mechanisms, making the governance process more transparent and efficient.

· Viewpoint: Ethereum's governance may become more transparent and efficient, especially in the proposal review and approval process, improving governance efficiency and making community decision-making more flexible.

9. EIP-7021: Validator Penalty Mechanism Optimization

· Content:  Adjust the penalty mechanism for validators to ensure that validator behavior aligns more with the network's interests and reduces the impact of misconduct.

· Viewpoint: The improved penalty mechanism will better constrain validator behavior, serving as a remedial mechanism for increasing the maximum staking balance from 32 ETH to 2048 ETH to balance network security and validator incentives, ensuring consensus layer stability.

10. EIP-7683: Smart Contract Performance Optimization

· Content:  Optimize smart contract execution efficiency, particularly in terms of Gas consumption, reduce execution costs, and improve smart contract operation efficiency on the network.

· Viewpoint: Smart contracts run more efficiently, consuming less Gas fees, which may fundamentally improve Uniswap's relevant mechanisms, lowering transaction costs, and increasing transaction speed, with DeFi applications being the direct major beneficiaries.

11. EIP-6123: Cross-Chain Compatibility Improvement

· Content:  Enhance Ethereum's network's cross-chain compatibility with other blockchains to support more cross-chain operations in the future, promoting interoperability between different blockchains.

· Viewpoint: Enhanced compatibility between Ethereum and other blockchains also optimizes the account abstraction mechanism, making it simpler to transfer assets and perform operations between different blockchains, strengthening custom functionality.

III. Pectra Dual-Layer Upgrade

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Pectra adopts a dual-layer upgrade approach by merging the execution layer (Prague) and the consensus layer (Electra) to address potential synchronization issues that may arise from separate upgrades in the past. The execution layer and consensus layer of Ethereum often serve different functions, so historically, these two aspects have usually been upgraded separately.

● Execution Layer (Prague): Responsible for processing user transactions, executing smart contracts, and managing state changes. This is the part where users directly interact with Ethereum, and it is the core layer that runs all decentralized applications (DApps) and smart contracts.

● Consensus Layer (Electra): Manages validators through a Proof of Stake (PoS) mechanism to ensure block generation and chain security. This layer is the foundation for network consensus and security, with validators staking to ensure their behavior aligns with the network's best interest.

It is worth noting:

EIP-6110, EIP-7002, EIP-7251, EIP-7549, EIP-7685, and EIP-7691 require changes to Ethereum's Consensus Layer.

EIP-2537, EIP-2935, EIP-6110, EIP-7002, EIP-7623, EIP-7685, EIP-7702, and EIP-7840 require changes to Ethereum's Execution Layer.

EIP-7623: Cross-Chain Message Mechanism Improvement

Enhances the handling of cross-chain messages to improve the efficiency and security of cross-chain communication. While the Pectra upgrade primarily focuses on improvements to Ethereum's internal Execution Layer and Consensus Layer, EIP-7623 specifically targets interactions with external blockchains, particularly optimizing cross-chain asset and information transfers.

EIP-2537: BLS12-381 Curve Operations

Introduces support for the BLS12-381 curve in Ethereum for encryption and zero-knowledge proofs. EIP-2537 is a proposal to introduce support for a specific cryptographic curve that serves verification and privacy-related functions. In contrast, proposals in the Pectra upgrade are more broadly focused on transactions, Gas fee optimization, and validator mechanisms.

EIP-2935: Validator Set Reversion

Provides a more flexible mechanism for nodes that lose their validator status to reclaim their eligibility. EIP-2935 focuses on a validator recovery mechanism to ensure that validators can continue to participate in consensus under certain conditions, while EIP-7251 and EIP-7021 in the Prague upgrade concentrate more on improving staking limits and penalty mechanisms.

IV. Impact of Pectra on Ethereum and the Cryptocurrency Market

Image Source: voiceofcrypto

DApps

The Pectra hard fork brought smart contract functionality to regular wallets, which can streamline the development process and expand the potential application scope. Features such as social recovery and transaction batching make it easier to create user-friendly DApps, whether in DeFi, GameFi, or other applications. Users can expect a more reliable and efficient DApp experience on the Ethereum network.

However, a major challenge that Ethereum itself faces is the pronounced "parasitic" effect of Layer 2 (L2). L2 chains have attracted a significant amount of DeFi activity, leading to a reduction in transaction fees on the Ethereum mainnet and an increase in ETH's inflation rate. While L2 chains are part of the Ethereum ecosystem, their centralized sequencers and independent economic models have raised questions about the value of the Ethereum mainnet.

Ethereum's Long-Term Value

During this cycle, many Ethereum holders have been dissatisfied with ETH's price performance. Many see the Pectra upgrade as a hope to change the rules of the ETH game, primarily focusing on improving practical staking and L2 scalability. Overall, the Pectra upgrade has brought many changes to Ethereum, making wallet operations more flexible, enabling batch transaction processing or gas fee sponsorship. Validator staking limits have increased, withdrawal and network joining speeds have accelerated, and operations have become more convenient. The network's block capacity has relatively increased, allowing for faster transaction processing, and gas fees are more stable, avoiding sudden spikes in fees during peak times.

The significant increase in staking thresholds has increased overall MEV transparency, raised MEV costs, and made network governance more transparent and efficient. In terms of smart contracts, execution will be more cost-effective, and cross-chain compatibility has also improved. However, the challenge of Ethereum's fragmented scalability issue raises the question of whether the development roadmap should focus on a single-network high throughput approach rather than relying on an aggregation of multiple chains to solve it. These challenges will also become constraints on Ethereum's future development.

Solana's price surge is mainly attributed to high throughput, low transaction costs, and backing from American capital. A single-chain liquidity is cohesive and unified, while Ethereum has solved scalability issues through L2, innovation has become fragmented and duplicated. A single network is superior to the L2 aggregation path. From a market perspective, Ethereum's greatest advantage lies in having the most comprehensive and decentralized DeFi network, with DeFi being Ethereum's greatest value proposition.

The Compromise of Decentralization

The biggest advantage of this upgrade lies in enhancing the overall security and scalability of Ethereum, but the double-edged sword of EIP-7251 will potentially reduce the network's operational load by merging validator counts and alleviating the burden of large storage, deepening Ethereum's centralization, turning Ethereum into the playground of large investors and institutions.

However, whether relying on a massive 2048 ETH stake, cutting off retail participation to attract large capital investment, shifting towards Solana and Sui to embrace U.S. capital, thus driving up the price of ETH, remains to be seen. Current Ethereum seems to be facing a new challenge, with narrative capability, centralized pull-up, and decentralized PoS staking forming the "new impossible triangle."

Where Is the New Narrative Polestar?

Ethereum seems to be losing direction, with fragmented ETH gradually inflating year by year, DeFi activities moving to layer two chains, and fee capture on layer one significantly decreasing. Layer two chains are effectively independent blockchains, with centralized sequencers being seen as entirely different blockchain networks. Base's substantial earnings flow to Coinbase, Arbitrum's profits flow to Arbitrum DAO, and profits flow completely out of Ethereum's layer one.

Bitcoin has a clear polestar of "digital gold," Solana's polestar is "Nasdaq on-chain." Blockchain embraces AI, Solana relies on DeFAI and AI Agent-related narratives to quickly gain prominence, and the SOL/ETH exchange rate has made the biggest "Ethereum killer" Solana's dream come true. Metis's ReGenesis plan will transform into an AI public chain, with intent-centricity also combating DeFAI.

So what is Ethereum's polestar after all? Why does the ETF repeatedly fail?

The root cause lies in the lack of staking rewards and centralized value attribution. The current form of the Ethereum ETF does not allow investors to participate in staking. By holding Ethereum through an ETF, investors miss out on about a 3.5% yield and must pay additional management fees, and they also cannot obtain DeFi income.

Similarly, in terms of value attribution, Ethereum's strong decentralized attribute makes it difficult to attribute to any particular capital force, and "Wall Street capital" has not yet truly "usurped" the victory of decentralization. More are just supporting DApps through stablecoins and DeFi, but the Pectra upgrade will increase the maximum stake balance from 32 ETH to 2048 ETH. It seems to be supporting the introduction of real-world assets into Ethereum by using staking as exposure, developing a more Ethereum-friendly version of RWA. Therefore, in the short term, Ethereum's polestar may be ETF staking, raising Ethereum's price expectations to an equally important level as Bitcoin's strategic reserve landing.

References:

（1）https://eips.ethereum.org/EIPS/eip-7600

（2）https://ethroadmap.com/?ref=bankless.ghost.io#pectra%20sticky

（3）https://eips.ethereum.org/EIPS/eip-7742

（4）https://eips.ethereum.org/EIPS/eip-7702

（5）https://eips.ethereum.org/EIPS/eip-7685

（6）https://eips.ethereum.org/EIPS/eip-7251

（7）https://eips.ethereum.org/EIPS/eip-7002

（8）https://eips.ethereum.org/EIPS/eip-6110

（9）https://eips.ethereum.org/EIPS/eip-2935

（10）https://eips.ethereum.org/EIPS/eip-2537

（11）https://www.galaxy.com/insights/research/ethereum-all-core-developers-execution-call-187/

This article is contributed content and does not represent the views of BlockBeats.