Key Insights
The main parts of the Pectra upgrade (7702, 3074, 7623) will directly benefit projects in the fields of modularization, chain abstraction, and AA wallets;
EIP-7594 (PeerDAS) in the Pectra upgrade introduces Data Availability Sampling (DAS), which will benefit the ZK Prover network and thus the ZK field;
Other small EIPs will have a certain degree of benefit in reducing L2 data layer fees, increasing transaction speeds, and reducing data storage costs;
Considering the overall market, especially with the recent âhigh FDV, low liquidityâ FUD, the Ethereum ecosystem may see a good increase in value as Q4 (Pectraâs release date) approaches;
From an investment perspective, the market's "anti-VC" trend has led to VC project valuations no longer being high. The primary market in Q3, especially DEFI and innovative DEFI projects, may be a good window for institutional entry;
The revenue/market value ratio of DEFI projects has reached a record low.
Basic Background
Recently, the most discussed topic in the Ethereum community is the Pectra upgrade. The Pectra upgrade combines two independent upgrades: the Prague upgrade and the Electra upgrade. Prague focuses on changes to the network execution layer, while Electra affects the consensus layer. These upgrades are collectively referred to as the "Pectra" upgrade. This upgrade is a major event following the Dencun upgrade in March 2024, and may also become the largest upgrade in Ethereum history.
According to information from ethereum.org (https://eips.ethereum.org/EIPS/eip-7600), the Ethereum Pectra upgrade may integrate multiple key Ethereum Improvement Proposals (EIPs) to jointly solve problems in scalability, security, and user experience. These related EIPs are:
The Pectra upgrade is another component of Ethereum's strategic development approach and is expected to be officially launched in Q1 2025. Below, we will briefly analyze Pectra by introducing several key EIPs and predict its possible impact.
This article was written by Huobi Research, a team currently affiliated with HTX Ventures. HTX Ventures is the global investment arm of Huobi HTX, integrating investment, incubation and research to identify the best and brightest teams in the world. HTX Ventures currently supports more than 300 projects covering multiple blockchain fields, and some high-quality projects have been listed on Huobi HTX trading.
Analysis of key EIPs
*EIP-7702: Account abstraction wallet innovation technology, replacing EIP 4337. EIP-7702 enables users' existing EOA to execute any smart contract code. The new feature-rich and user-friendly wallet may promote the birth of complex gameplay applications.
Although EIP-7702 is highly compatible with all account abstraction work built for EIP-4337 to date, the current AA wallet project has spent a lot of time developing based on the EIP-4337 standard in order to achieve unique features. The unique market position of AA wallets that the Ethereum Foundation continues to promote will no longer exist, because the functions they can achieve can also be achieved by EOA wallets. AA wallets will directly compete with EOA wallets with high user volume such as metamask, and the original AA wallet startup team needs to reposition its product.
Subsequent EOA wallets will be able to implement new features such as transaction sponsorship and gas payment, batch management of accounts and transactions, and these features can also be upgraded and updated in the future. This is friendly to web2 users and defi financial transactions, and may promote the birth of new complex gameplay applications that attract web2 users, and there are a series of opportunities.
Historical background:
Account abstraction (AA) has very poor penetration and compatibility: The survival of the account abstraction market depends on the adoption of EIP 4337 by the ecosystem, but many Dapps and L2s do not support it yet. The total number of smart contract wallets, estimated by the sum of Gnosis Safe and Argent accounts (these two products have the most users), is only 150,000.
The technical solution of EIP 4337 is quite vague: Although EIP 4337 defines the contract interfaces of infrastructure such as bundlers, paymasters, and signature aggregators, Ethereum officials have not provided solutions to many important technical problems, which require the project parties to repeatedly try different technical implementations.
*EIP-3074: Proposed in October 2020, included in the Pectra upgrade on April 12, 2024
The core idea of ââEIP-3074 is to delegate control of externally owned accounts (EOAs) to smart contracts. It allows any EOA to act as a smart contract wallet without deploying a contract, and therefore can execute more complex transaction schemes such as transaction Gas sponsorship and batch transactions.
So how does EIP-3074 turn existing EOAs into smart contracts? EIP-3074 enables multi-signatures, batched and sponsored transactions, key recovery, and more accessible CeFi exchange deposits by introducing AUTH and AUTHCALL opcodes, which, when used together, allow smart contracts to send transactions on behalf of EOAs.
To elaborate, the user first signs the transaction off-chain, and then the user or Gas sponsor sends the transaction to the Invoker contract (a special contract that plays an intermediary role). The Invoker contract uses "AUTH" and "AUTHCALL" to verify and call each target contract, which gives the smart contract greater management power to help users complete many operations.
Each EOA address can set an Invoker logic contract to expand functions. Invoker has a great deal of customized transaction logic and permission control functions, which is flexible enough. Invoker is deeply associated with another track we are familiar with, "intent-centric". Its transaction experience optimization requires the invoker to design complex transaction logic in the contract: such as automated transaction; conditional triggering of the next transaction; automated asset allocation; batch collection of transactions; increase of multi-signature approval transactions; transaction time limit; transaction integration with external systems; transaction financial management strategies, etc., refined services for specific groups of people. The representative project ApertureFinance has a transaction volume of 2.6 billion US dollars and is favored by some institutional trading users. The disadvantage is that once the invoker contract does evil, it will cause great asset damage to users.
*EIP-7702: Proposed by Vitalik Buterin, inherits the core functions of EIP-3074
EIP-7702 allows externally owned accounts (EOAs) to temporarily play the role of smart contract wallets in transactions, allowing EOAs to perform complex operations that were previously only possible with smart contracts, greatly enhancing the functionality and flexibility of EOAs. This proposal is at the protocol level, but it temporarily applies smart contract code in transactions without permanently changing the EVM, so it has high compatibility.
EIP-7702 allows for the temporary assignment of smart contract code to an EOA in a single transaction, a trustless approach that eliminates any access or contract signatures after the transaction.
The code of the smart contract is stored in the "Contract Code". Since EOA itself is not a contract, this field is usually empty, and it will temporarily fill some smart contract code into this field during transaction execution.
EIP-7702 proposes a new transaction type that accepts both contract_code and signature fields, and at the beginning of the transaction, it sets the contract code of the signer account to contract_code. At the end of the transaction, it sets the code back to empty.
EOAs can dynamically introduce smart contract code into transactions, enabling multiple operations such as batch processing and complex transaction instructions to be completed in a single transaction, thereby simplifying the process and reducing transaction costs while reducing operational complexity. This flexibility is particularly suitable for highly interactive financial applications such as decentralized finance (DeFi) platforms.
Secondly, EIP-7702 also introduces a new permission management mechanism, namely permission downgrade. This allows account holders to assign specific permissions to their subkeys, thereby enhancing the security of the account. Through fine-grained permission control, users can limit the scope of operation of subkeys to prevent unauthorized transactions and abuse.
EIP-7702 also features transaction sponsorship, allowing one account to pay transaction fees for another account. For example, a service provider might pay transaction fees for its customers, thereby simplifying the customer experience and attracting more users to use its platform or service.
Currently, EIP-7702 has just been included in the Pectra upgrade, and some information is still unclear, but it is related to the most important entry point of web3. Just like the emergence of metamask and defi summer complement each other, the new web2-friendly wallet solution may also promote the birth of a batch of new applications, so it should be focused on. At the same time, core defi applications such as uniswap also have a positive response to EIP7702.
EIP-7623: Proposed by Vitalik, increases calldata cost, makes blocks smaller, and improves overall Layer 2 performance
Content and background
The block gas limit has not increased since EIP-1559, while the average size of blocks continues to increase due to an increasing number of rollups publishing data to Ethereum Calldata.
Calldata is the data used to pass function call parameters in Ethereum smart contracts, including function selectors and parameters. Although calldata data is only used temporarily when executing transactions, it will be discarded once the transaction is executed to reduce storage pressure, but it still takes up block size and consumes gas fees.
After 4844, all rollup data is stored in BLOB, making BLOB the preferred solution for data availability.
This shift requires a re-evaluation of calldata pricing, particularly with respect to reducing inefficiencies between average block size and the maximum possible block size, as the existing fee model and block size limits do not effectively optimize calldata usage, leading to underutilized and costly resources.
The theoretical maximum size of an Ethereum block is 1,875,000 bytes (1831KB), while the actual average size is only about 100 KB. The actual block size is much smaller than the theoretical maximum. This is because the high gas fees generated by calldata have led to a decrease in the number of transactions, resulting in insufficient utilization of block space, affecting network efficiency and scalability.
By introducing a calldata-dependent floor price for transactions that primarily use Ethereum for data availability (DA), the proposal aims to reduce the maximum block size to make room for adding more blobs.
There is also a related proposal:
Vitalik Buterin proposed EIP-7706 to further optimize transaction costs and network performance by creating an independent fee market for calldata and setting independent base fees and gas limits.
Combined Impact
Improve Ethereum's cost-effectiveness: Further optimize transaction processing speed and resource utilization efficiency, avoid unnecessary fee increases, and make calldata fees cheaper. This will not only help reduce the average cost of each transaction, but also optimize the use of network resources and improve the overall performance of Ethereum.
Good for layer 2: The blob data design introduced in EIP-4844 complements each other. By unifying the basic fee adjustment mechanism, Layer 2 solutions can more effectively utilize Layer 1 resources to improve overall layer 2 and application performance.
Good for sorters: By optimizing the fee structure for calldata and blob data, you can significantly reduce the sorter's cost when publishing data. Decentralized sequencer projects such as Morph, Metis, Espresso, Eigenlayer, Astria, SUAVE, and Radius will benefit from these improvements.
EOF related upgrades
What is EOF?
Ethereum Object Format (EOF) is a new standard introduced as part of the Pectra hard fork. EOF aims to improve the way smart contracts are created and executed on the Ethereum network. By providing a more structured and efficient way to work with smart contracts, EOF makes the development process simpler and safer for developers.
EOF introduces a new format for Ethereum smart contracts that makes them easier to read and manage. This new format helps reduce errors and improve security by clearly defining how smart contracts behave. For developers, this means fewer bugs and vulnerabilities, resulting in more reliable applications on the Ethereum network.
EOF also made improvements to the Ethereum Virtual Machine (EVM), a core component for executing smart contracts. These improvements make the EVM more efficient, enabling it to process more transactions simultaneously without slowing down. This is critical to maintaining a fast and responsive network as the number of users and applications grows.
Impact on Pectra Updates
The inclusion of EOF in the Pectra hard fork enhances the overall effect of the upgrade. By making smart contracts safer and easier to develop, EOF helps ensure that new features introduced in Pectra, such as social recovery and transaction batching, can be implemented safely and efficiently.
EOF also supports the scalability improvements brought by Pectra. As the Ethereum network grows, it needs to process more transactions and run more smart contracts without compromising speed or security. EOF's enhancements to the EVM and smart contract structure play a key role in achieving this goal.
Benefits for developers and users
For developers, EOF simplifies the process of creating and maintaining smart contracts. Clearer rules and better tools mean fewer bugs and more powerful applications. This in turn benefits users by providing more reliable and secure decentralized applications on the Ethereum network.
For users, the improvements brought by EOF mean a better overall experience. Faster transaction processing and more secure applications make Ethereum more attractive for everyday use. Whether it is used for financial transactions, games, or other applications, users can get a smoother and more secure experience on the Ethereum network.
Overall, EOF is an important part of the Pectra hard fork. It enhances the security and efficiency of smart contracts, supporting the broader goals of the Pectra update. By improving the developer experience and ensuring better performance and security, EOF contributes to Ethereum's continued growth and innovation in the blockchain space.
EIP-7594-PeerDAS: Data Availability Sampling in the Pectra Upgrade
Contents of the Agreement
PeerDas is EIP7594. PeerDAS is an implementation of data availability sampling on Ethereum, which is expected to greatly enhance the network's ability to support rollups and their data availability requirements. In practice, PeerDAS is expected to increase the number of blob transactions that validators can attach to blocks from 3 per block to 64 or more.
The Pectra upgrade is expected to be released by the end of the first quarter of 2025, with PeerDAS being one of the notable improvements. PeerDAS, or Data Availability Sampling, aims to solve Ethereumâs scalability issues by leveraging existing peer-to-peer (P2P) components to ensure data distribution and availability.
Key Features and Benefits of PeerDAS
Scalability and efficiency: PeerDAS enhances Ethereumâs scalability by distributing the responsibility for data availability across the network. This means that instead of relying on a few nodes to store and verify all data, the workload is spread across multiple nodes, improving overall network efficiency and resilience.
Improved data availability: Through data availability sampling, PeerDAS ensures that the data required to verify transactions is available without placing an excessive burden on any single node. This mechanism ensures the availability of the entire data set by checking a small, randomly selected subset of data while reducing the pressure on a single node.
Enhanced network resilience: By leveraging Ethereumâs existing P2P components, PeerDAS is able to improve the networkâs resilience to attacks and outages. By enhancing data availability, it is difficult for a single point of failure to disrupt the operation of the overall network.
Integration with other upgrades: PeerDAS is part of a series of improvements in the Pectra upgrade, including the Ethereum Virtual Machine (EVM) Object Format (EOF) and new Ethereum Improvement Proposals (EIPs), such as EIP-7702. The common goal of these upgrades is to optimize transaction processing, enhance smart contract capabilities, and improve user experience and security.
Overall, PeerDAS is a critical step forward in ensuring Ethereum can scale effectively and remain resilient. By improving data availability and leveraging the strengths of Ethereumâs decentralized network, PeerDAS lays the foundation for a more robust and efficient blockchain ecosystem.
Two major advantages
Promoting the development of DeFi (decentralized finance)
Improve transaction speed and efficiency: PeerDAS improves the transaction speed and efficiency of the Ethereum network, enabling DeFi applications to process large volumes of transactions faster, reducing transaction waiting time and improving user experience.
Lower transaction costs: By improving network efficiency, PeerDAS helps reduce transaction costs, making DeFi projects cheaper to operate and thus attracting more users to participate.
Supporting emerging applications and innovation
Extension of smart contracts: The combination of PeerDAS and other improvements (such as EIP-7702) enables smart contracts to operate more flexibly and support more innovative application scenarios, such as decentralized identity authentication and complex financial derivatives.
Cross-chain interoperability: Improved data availability and network performance will make Ethereum easier to interoperate with other blockchains, promoting the development and innovation of cross-chain applications.
Good news for ZK Prover network
At present, although ZK technology is powerful, there are problems such as long ZKP generation time and Prover centralization. The hardware acceleration of ZKP generation and the decentralized Prover network have become a new hot track in the ZK field after ZK Rollup in the primary market.
In this field, Succinct @SuccinctLabs and Cysic @cysic_xyz completed financing of $55M and $12M respectively.
Taking Cysic @cysic_xyz as an example, the team has the ability to design ZK hardware acceleration chips, and on this basis recommends the ZK proof layer Cysic Network.
Since the ZKP generation service market is still in its early stages, the revenue generated cannot yet cover the Proverâs hardware depreciation, electricity costs, operating and maintenance costs, etc. Therefore, the ZK Prover network needs to raise funds from the market by issuing coins, and then reward the tokens to the Prover nodes through PoW, so as to promote the adoption of the ZKP Prover network.
The Cancun upgrade catalyzed a batch of L2 with billions to tens of billions of FDVs, and the Pertra upgrade will also catalyze a batch of ZK Prover networks with billions to tens of billions of FDVs.
EIP-7251: Increase the maximum effective balance, and increase the validator staking limit from 32 ETH to 2048 ETH
Contents of the Agreement
EIP-7251, also known as âmaxeb,â is a proposed enhancement for the upcoming Ethereum Pectra hard fork. This change is designed to reduce the risk of beacon chain instability when staked ETH approaches or exceeds 50% of the network.
maxeb allows multiple validators to be consolidated into fewer "super validators", seeking to simplify operations without affecting monetary policy or rewards. It also benefits individual stakers, allowing them to accumulate rewards beyond 32 ETH.
Despite the potential advantages, the Ethereum community remains divided over the inclusion of maxeb in Pectra. The debate centers on its impact on network decentralization and validator diversity, with concerns about potential centralization and reduced participation from small validators.
Proposal motivation and expected impact
Reduce the number of validators
By increasing the maximum effective balance, the total number of validators can be reduced, reducing the burden on the network and improving efficiency
Enhanced economic security
Increasing the maximum effective balance will enhance the economic security of the network and avoid instability caused by a highly fragmented validator pool.
Reduced operating costs
For large node operators, reduce the need to run multiple validators, reduce development and operation costs, and maximize revenue
Ethereum developers have discussed capping the stake ratio at 1/4, a change that would allow individual validators to stake more than 32 ETH, up to 2,048 ETH instead of the current maximum limit of 32 ETH. Increasing the maximum effective validator balance would allow operators to manage fewer but more highly staked validators, potentially reducing complexity.
Latest Developments
On June 27, 2024, Ethereum developers discussed and coordinated changes to the Ethereum Consensus Layer (CL, also known as the Beacon Chain). The developers discussed new research on client diversity data collection and multi-client block validation.
Pectra Devnet 1 is close to being ready for release. The Ethereum Foundationâs DevOps team is awaiting the readiness of the EL clients. PeerDAS Devnet 1 is live and has three different consensus client implementations.
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ReferenceïŒ
https://eips.ethereum.org/EIPS/eip-7600
https://cryptomaniaks.com/ethereum-pectra-hard-fork-eof-cfi-prague-electra
https://github.com/ethereum/ercs/blob/master/ERCS/erc-4337.md?ref=blog.quicknode.com#backwards-compatibility
https://www.galaxy.com/insights/research/ethereum-all-core-developers-execution-call-187/
https://ethereum-magicians.org/t/eip-7623-increase-calldata-cost/18647
https://ethroadmap.com/?ref=bankless.ghost.io#pectra%20sticky (Etherum Upgrade Roadmap)
