In the recent months of the cryptocurrency market, driven by the 'Trump effect', Bitcoin has performed particularly well, while other public chain projects such as SOL and SUI have also recorded significant gains, setting historical highs. In contrast, the overall performance of the Ethereum ecosystem appears relatively flat.
Although ETH once surged to around $4000, it has not yet reached the previous historical high of $4800, and other tokens within the Ethereum ecosystem also performed moderately. However, this does not mean that Ethereum's decline is a foregone conclusion.
It is worth noting that while Bitcoin has recently experienced a pullback, the price of ETH has shown relative stability, mainly due to institutional investors' continued buying of ETH. As Bitcoin prices continue to reach new highs, some institutional investors have begun to shift their focus to Ethereum.
We can take a look at the inflow and outflow of funds from the spot Ethereum ETF over the past month.
From the screenshots above, it can be observed that since November, when Trump was elected, the spot Ethereum ETF has shown a net inflow of funds on most trading days, which stands in stark contrast to the continuous net outflow of funds when the ETF was first launched. This phenomenon clearly indicates that more and more institutions are indirectly increasing their risk exposure to ETH through the spot Ethereum ETF.
Given Trump's friendly stance towards the cryptocurrency market and his potential loose cryptocurrency policies, positive changes in market expectations have emerged. For example, although the spot Ethereum ETF has been approved, the ETH within it is not yet supported as collateral, which somewhat limits the potential gains for ETH holders. However, with Trump's ascendance, the market generally expects the staking-type Ethereum ETF to be approved, which will provide new income channels for investors and further stimulate interest and confidence in Ethereum.
Additionally, another important positive factor supporting the subsequent price of ETH is the Ethereum Pectra upgrade.
The Ethereum Pectra upgrade is expected to begin in the first quarter of 2025. This upgrade combines two independent upgrades: the Prague upgrade and the Electra upgrade, which respectively affect the execution layer and the consensus layer of the network. The Pectra upgrade will include multiple improvements, such as allowing users to pay gas fees with other tokens, accelerating the execution speed of smart contracts, and increasing staking rewards for validators.
Although Ethereum has undergone multiple upgrades, such as the merge upgrade in 2022 and the Cancun upgrade in 2024, it still faces many challenges.
Compared to public chains like SOL, SUI, and BNB, Ethereum is not advantageous in terms of TPS or transaction gas fees. When the Ethereum network is busy, gas fees spike, leading more projects to choose to build on other public chains, resulting in a significant decline in Ethereum ecosystem trading volume. The Pectra upgrade is precisely a solution proposed to address these pain points.
The Ethereum Pectra upgrade aims to comprehensively enhance the speed, scalability, and convenience of Ethereum, providing a better user experience for both ordinary users and blockchain developers.
What improvements are mainly included in the Pectra upgrade?
1. Account Abstraction
Currently, when trading in the Ethereum ecosystem, a certain amount of ETH must be held in the account to cover gas fees. If there is not enough ETH in the account to pay for gas, the transaction will not be successful, which undoubtedly affects the normal operation of some transactions.
However, after the completion of the Pectra upgrade, Ethereum will introduce the concept of account abstraction, which will significantly enhance the user transaction experience. Through account abstraction, users can pay gas fees not only with ETH but also with other tokens such as USDC and DAI, making operations more flexible. Additionally, after the Pectra upgrade is completed, third-party DApps will be able to pay gas fees on behalf of users, meaning that in certain cases, users will not need to pay gas fees.
2. Efficiency of Smart Contracts
With the gradual adoption and implementation of Ethereum Improvement Proposals (such as EIP-7692), the efficiency of the Ethereum Virtual Machine (EVM) will see significant improvements, greatly accelerating the execution speed of smart contracts. This optimization not only significantly reduces the deployment costs of smart contracts but also simplifies their complexity, providing substantial benefits for both developers and users.
3. Optimizations for Validators
As is well known, validators on the Ethereum public chain need to stake at least 32 ETH, and in return, they will receive corresponding rewards. However, the portion exceeding 32 ETH does not generate income and remains idle, which undoubtedly affects the efficiency of capital utilization.
In the Pectra upgrade, a more flexible staking withdrawal mechanism (EIP-7002) has been introduced, and the staking limit for validators has been raised from 32 ETH to 2048 ETH (EIP-7251), which will greatly enhance the system's flexibility and operational efficiency, especially significant for individuals and enterprises that hold and manage large amounts of ETH.
Secondly, the Pectra upgrade will introduce a 'validator consolidation' feature, allowing large operators like Lido, which provide ETH staking services for numerous users, to reduce the number of their validator nodes. This measure will not only effectively alleviate the operational burden on the Ethereum network but also further enhance network speed while reducing unnecessary resource consumption.
4. Optimizing Data Management through Verkle Trees
The Pectra upgrade introduces a crucial technological innovation - Verkle trees. This innovation allows nodes to store blockchain data more efficiently. While it may sound complex, Verkle trees essentially optimize data storage and verification mechanisms, significantly enhancing the operational speed and scalability of the Ethereum network.
In short, Verkle trees represent an advanced way of organizing data. They not only significantly reduce storage requirements but also accelerate the transaction processing flow, providing users with a smoother and more economical Ethereum experience.
5. Layer 2 Solutions and PeerDAS
Ethereum Layer 2 solutions (such as Arbitrum and Optimism) aim to process a large number of transactions off the mainnet, thereby alleviating network congestion and reducing transaction costs (gas fees).
The Pectra upgrade will introduce a peer data availability sampling (PeerDAS) feature, further optimizing Layer 2 solutions. The PeerDAS technology can assist Layer 2 networks in handling data more easily, thereby reducing costs and improving processing speed, which is a major benefit for both DApps in the Ethereum ecosystem and users.
In summary, the Pectra upgrade is a major upcoming upgrade for the Ethereum ecosystem that will lay a solid foundation for its long-term development. Whether for ordinary users, validators, or developers, the Pectra upgrade will bring some new features to improve the Ethereum user experience.
