I. Background of the Pectra Hard Fork
The Ethereum Pectra upgrade, which integrates the Prague and Electra versions, marks a deep integration of the execution layer and consensus layer. It aims to enhance staking mechanisms, optimize Layer 2 (L2) scalability, and strengthen network governance. The Pectra upgrade went live on March 5th, combining updates from Prague and Electra to optimize Ethereum's execution and consensus layers. This fork is a significant upgrade to the Ethereum network, designed to improve the ETH staking experience, enhance L2 scalability, and expand network capacity. It introduces 11 Ethereum Improvement Proposals (EIPs). The upgrade process was initially implemented on the Holesky testnet on February 24, 2024, with plans to deploy Pectra to the mainnet on April 8, 2024, provided that both Holesky and Sepolia testnets successfully complete the upgrade.
Following the Dencun upgrade implemented in March 2024, the Ethereum Pectra upgrade is expected to integrate several important EIPs, which will collaboratively address challenges related to scalability, security, and user experience. The Pectra upgrade will be implemented in two phases:
Phase 1: Mid-March 2025
L2 Blob Capacity Doubling: Increase the Blob capacity in each block from 3 to 6, reducing congestion and lowering fees.
Account Abstraction: Allow the use of stablecoins like USDC and DAI to pay for gas fees, providing more payment flexibility.
Increased Validator Staking Limits: Raise the staking cap from 32 ETH to 2,048 ETH, enabling large-scale staking operations.
Phase 2: End of 2025 or Early 2026
Implementation of Verkle Trees: Replace the Merkle-Patricia tree with a more efficient data structure to improve data storage and synchronization.
Peer Data Availability Sampling (PeerDAS): Enhance scalability by allowing nodes to verify transaction data without storing all the data.
II. The 11 Improvement Proposals in the Pectra Upgrade
The Ethereum Pectra upgrade includes 11 EIPs aimed at enhancing scalability, security, account abstraction, and validator staking mechanisms. Below are key proposals (with personal views on their importance and impact on Ethereum's development):
EIP-7702: Account Abstraction
Content: Allows externally owned accounts (EOAs) to execute partial smart contract functions, enabling more flexible account operations such as batch transactions and sponsored gas fees.
Viewpoint: This proposal will undoubtedly make account abstraction wallets more powerful, allowing them to perform advanced functions like batch transactions and sponsored gas fees, similar to smart contracts.
EIP-7251: Increased Validator Staking
Content: Raises the maximum validator stake from 32 ETH to 2,048 ETH, simplifying validator management and enabling larger-scale validator nodes.
Viewpoint: The significant increase in staking limits will likely increase Ethereum's centralization risk. It also raises the barrier to entry for ordinary users, making the network more suitable for institutional participation.
EIP-7002: Withdrawal Improvements
Content: Allows execution layer addresses to trigger withdrawal operations, reducing trust assumptions between the consensus and execution layers and simplifying the withdrawal process.
Viewpoint: This makes the withdrawal process simpler and more direct for validators, reducing intermediary steps.
EIP-6110: Optimized Validator Activation Delay
Content: Reduces the activation delay for validator deposits from approximately 9 hours to 13 minutes, significantly improving validator efficiency and flexibility.
Viewpoint: This accelerates the speed at which new validators can join the network, reducing storage and management costs.
EIP-7691: Data Block Expansion
Content: Increases data block capacity by 50%, allowing the network to handle more transactions and enhancing scalability and throughput.
Viewpoint: This expansion means the network can process more transactions, reducing congestion during peak times and speeding up transactions.
EIP-7516: Increased MEV Transparency
Content: Provides more information and transparency on Maximum Extractable Value (MEV), helping users and developers better understand and monitor MEV activities.
Viewpoint: While this increases transparency, it also raises the difficulty of MEV arbitrage, ensuring fairer transactions.
EIP-7549: Gas Fee Adjustment
Content: Adjusts the gas fee structure to optimize network fees, reducing network burden during peak times and making transaction fees more reasonable.
Viewpoint: This adjustment stabilizes transaction fees even during network congestion, reducing the need for users to pay high fees during peak periods.
EIP-7685: Governance Mechanism Optimization
Content: Enhances decentralized governance mechanisms, making the governance process more transparent and efficient.
Viewpoint: This will likely make Ethereum's governance more transparent and efficient, especially in the proposal review and approval process.
EIP-7021: Optimized Validator Penalty Mechanism
Content: Adjusts the penalty mechanism for validators to ensure their behavior aligns with network interests and reduces the impact of malicious behavior.
Viewpoint: This mechanism will better regulate validator behavior, balancing network security and validator incentives.
EIP-7683: Smart Contract Performance Optimization
Content: Optimizes smart contract execution efficiency, reducing gas consumption and improving performance.
Viewpoint: This will make smart contracts more efficient and cost-effective, benefiting DeFi applications by reducing transaction costs and speeding up transactions.
EIP-6123: Cross-Chain Compatibility Improvement
Content: Enhances Ethereum's compatibility with other blockchains, facilitating more cross-chain operations and interoperability.
Viewpoint: This will simplify asset transfers and operations across different blockchains, strengthening interoperability.
III. Pectra's Dual-Layer Upgrade
Pectra adopts a dual-layer upgrade approach by merging the execution layer (Prague) and consensus layer (Electra), addressing synchronization issues that arise from separate upgrades. Historically, these layers have been upgraded separately due to their distinct functions:
Execution Layer (Prague): Handles user transactions, executes smart contracts, and manages state changes. This is the core layer where all decentralized applications (DApps) and smart contracts run.
Consensus Layer (Electra): Manages validators through the Proof of Stake (PoS) mechanism, ensuring block generation and chain security. This layer is fundamental to network consistency and security, with validators staking to ensure their actions align with network interests.
Additional Notes:
EIPs like EIP-6110, EIP-7002, EIP-7251, EIP-7549, EIP-7685, and EIP-7691 require changes to the consensus layer.
EIPs like EIP-2537, EIP-2935, EIP-6110, EIP-7002, EIP-7623, EIP-7685, EIP-7702, and EIP-7840 require changes to the execution layer.
EIP-7623: Cross-Chain Messaging Mechanism Improvement
Improves cross-chain messaging handling, enhancing efficiency and security in cross-chain communications. Pectra focuses on internal improvements, while EIP-7623 optimizes interactions with external blockchains, especially cross-chain asset and information transfers.
EIP-2537: BLS12-381 Curve Operations
Introduces support for the BLS12-381 curve in Ethereum, used for encryption and zero-knowledge proofs. This proposal serves specific cryptographic functions related to validation and privacy.
EIP-2935: Validator Recovery Mechanism
Provides a flexible mechanism for nodes that lose validator status to regain their qualifications. This ensures validators can continue participating in consensus under certain conditions.
IV. Impact of Pectra on Ethereum and the Crypto Market
DApps
Introducing smart contract functionality into regular wallets through the Pectra hard fork simplifies development and expands potential applications. Features like social recovery and batch transactions make creating user-friendly DApps easier across DeFi, GameFi, and other applications. Users can expect more reliable and efficient DApps on the Ethereum network.
However, Ethereum faces a significant challenge with the "parasitic" effect of L2 chains. L2s attract substantial DeFi activity, reducing transaction fees on the Ethereum mainnet and increasing ETH's inflation rate. While L2s are part of the Ethereum ecosystem, their centralized sequencers and independent economic models raise questions about the mainnet's value.
Long-Term Value of Ethereum
Many Ethereum holders are dissatisfied with ETH's performance in this cycle, viewing the Pectra upgrade as a potential game-changer, especially in staking and L2 scalability. Overall, Pectra brings notable changes: wallets can now handle batch transactions and sponsor gas fees; validator staking limits are higher; withdrawal and network entry speeds are faster; and operations are more convenient. The network's block capacity has increased, speeding up transaction processing and stabilizing gas fees during peak times.
The significant increase in staking thresholds also enhances MEV transparency and increases MEV costs. Network governance has become more transparent and efficient. Smart contracts are more cost-effective, and cross-chain compatibility has improved. However, the challenge of Ethereum's fragmented expansion remains: should it focus on high throughput in a single network rather than relying on multiple chains? This dilemma could become a future obstacle for Ethereum.
Solana's price surge is mainly due to its high throughput, low transaction costs, and backing by U.S. capital. A single chain's liquidity is complete and unified. Ethereum has addressed scalability through L2s but at the cost of fragmenting innovation. From a market perspective, Ethereum's biggest advantage lies in its robust and decentralized DeFi network, which remains its core value.
Compromise on Decentralization
The biggest advantage of this upgrade is the enhanced security and scalability of Ethereum. However, EIP-7251 is a double-edged sword. On the positive side, it reduces operational load by consolidating validators and easing the burden on large storage systems. On the negative side, it deepens Ethereum's centralization, making it a playground for large investors and institutions.
Will the significant increase in the staking threshold to 2,048 ETH effectively exclude retail participation and attract large-scale institutional investment? This remains to be seen. Ethereum currently faces a new dilemma: the "new impossible triangle" of narrative power, centralized price manipulation, and decentralized PoS staking.
Where is the New Narrative's North Star?
Ethereum seems to be losing direction. Fragmented ETH is experiencing annual inflation, and DeFi activities have migrated to L2 chains, significantly reducing fee capture on the mainnet. L2 chains are essentially independent blockchains, with centralized sequencers acting as entirely different blockchain networks. Profits from Base flow to Coinbase, and Arbitrum's profits flow to Arbitrum DAO, completely draining revenue from Ethereum's mainnet.
Bitcoin has a clear North Star—"digital gold." Solana's North Star is "the Nasdaq on-chain." Blockchain's embrace of AI and Solana's rapid rise through DeFAI and AI Agent narratives have made Solana the leading "Ethereum killer." Metis's ReGenesis plan aims to transform into an AI public chain, also challenging DeFAI.
So, what is Ethereum's North Star? Why do ETFs repeatedly face setbacks? The root cause lies in the lack of staking rewards and centralized value attribution. Ethereum ETFs currently do not allow investors to participate in staking. Holding Ethereum through ETFs means missing out on approximately 3.5% in yield, in addition to paying extra management fees, and not gaining DeFi returns.
Similarly, in terms of value attribution, Ethereum's strong decentralization makes it difficult to align with any single capital force. "Wall Street capital" has yet to truly capture the fruits of decentralization. Instead, it supports DApps through stablecoins and DeFi. However, the Pectra upgrade, which increases the maximum staking balance from 32 ETH to 2,048 ETH, seems to be opening up staking as an entry point for large institutional participants to introduce real assets into Ethereum and develop a version of Real World Assets (RWA) more suited to Ethereum. Thus, in the short term, Ethereum's North Star might be ETF staking, which could elevate price expectations to a level comparable to the落地 of Bitcoin strategic reserves.
