Pectra Upgrade: The Next Catalyst for the Ethereum Ecosystem Explosion

In recent months, the cryptocurrency market has seen Bitcoin stand out, driven by the "Trump Effect." Meanwhile, other public chain projects such as SOL and SUI have also recorded significant gains, reaching all-time highs. In contrast, the overall performance of the Ethereum ecosystem has appeared relatively flat.

Although ETH once climbed to around $4000, it has yet to reach its previous all-time high of $4800, and other tokens within the Ethereum ecosystem have also performed modestly. However, this does not mean that Ethereum's decline is a foregone conclusion.

It is noteworthy that as Bitcoin recently experienced a pullback, the price of ETH has shown relative stability, primarily due to institutional investors' continued buying of ETH. As Bitcoin prices continue to hit new highs, some institutional investors are beginning to shift their focus to Ethereum.

Let's take a look at the inflow and outflow of funds in the spot Ethereum ETF over the past month.

From the screenshot above, it can be observed that since Trump was elected in November, the spot Ethereum ETF has shown a net inflow of funds on most trading days, contrasting sharply with the continuous net outflow seen 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 the potential for a loose cryptocurrency policy, market expectations have shifted positively. 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 returns for holding ETH. However, with Trump's ascension, the market widely expects that a staking Ethereum ETF is likely to be approved, which would provide investors with new revenue channels and further stimulate interest and confidence in Ethereum.

Additionally, another important positive factor supporting the subsequent ETH price 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 several improvements, such as supporting users to pay Gas fees with other tokens, accelerating smart contract execution speed, 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 does not have an advantage in terms of TPS or transaction gas fees. When the Ethereum network is busy, gas fees soar, leading more projects to choose to build on other public chains. This has resulted in a significant decline in trading volume within the Ethereum ecosystem. The Pectra upgrade is proposed as a solution to address these pain points.

The Ethereum Pectra upgrade aims to comprehensively enhance Ethereum's speed, scalability, and convenience, providing a better user experience for both ordinary users and blockchain developers.

What are the main improvements of the Pectra upgrade?

1. Account Abstraction

Currently, when we conduct transactions in the Ethereum ecosystem, a certain amount of ETH must be held in the account to cover gas fees. If there is insufficient ETH to pay for gas, the transaction will not succeed, which undoubtedly affects the normal execution of some transactions.

However, after the completion of the Pectra upgrade, Ethereum will introduce the concept of account abstraction, significantly enhancing the user transaction experience. Through account abstraction, users will be able to pay gas fees not only with ETH but also with other tokens like USDC and DAI, making the operation more flexible. Additionally, after the completion of the Pectra upgrade, third-party DApps will be able to pay gas fees on behalf of users, meaning that in some cases, users will not need to pay gas fees.

2. Smart Contract Efficiency

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, bringing substantial benefits to 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, any amount exceeding 32 ETH does not generate returns and remains idle, which undoubtedly affects the efficiency of capital utilization.

In the Pectra upgrade, a more flexible staking withdrawal mechanism (EIP-7002) will be introduced, and the staking limit for validators will be increased from 32 ETH to 2048 ETH (EIP-7251), greatly enhancing the system's flexibility and operational efficiency, especially for individuals and enterprises that hold and manage large amounts of ETH.

Additionally, the Pectra upgrade will introduce a "validator consolidation" feature, allowing large operators like Lido, which provide ETH staking services to many 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. Data Management Optimization through Verkle Trees

The Pectra upgrade introduces a crucial technological innovation—Verkle trees. This innovation allows nodes to store blockchain data more efficiently. Although 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 transaction processing. This provides 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 move a large number of transactions off the mainnet for processing, thereby alleviating network congestion and reducing transaction costs (gas fees).

The Pectra upgrade will introduce Peer Data Availability Sampling (PeerDAS) functionality, further optimizing Layer 2 solutions. The PeerDAS technology will assist Layer 2 networks in handling data more easily, thereby reducing usage costs and increasing processing speed, which is a significant benefit for both DApps in the Ethereum ecosystem and users.

In summary, the Pectra upgrade is a major upgrade for the Ethereum ecosystem, laying a solid foundation for its long-term development. Whether for ordinary users, validators, or developers, the Pectra upgrade will bring new features that enhance the Ethereum experience.