Ethereum stands as one of the world's largest and most developer-preferred public blockchain networks. With the ongoing advancements of Ethereum 2.0 and Layer 2 solutions, it continues to lead and shape the future of blockchain technology. Justin Drake, a key member of the Ethereum Foundation (EF), has played a vital role in driving the development and implementation of Ethereum 2.0, contributing significantly to both technological progress and broader innovation within the blockchain space.
This discussion offers perspectives from Justin Drake and Owen, Head of Web3 Product at OKX, providing a deeper understanding of the Ethereum ecosystem. It covers technical improvements, consensus mechanisms, scalability, security, DeFi, user experience, environmental impact, and future strategies related to Ethereum 2.0.
Changes in Ethereum and L2 After the Dencun Upgrade
Justin Drake: Following the Dencun upgrade, Ethereum’s throughput has improved, and gas fees on L2 networks have dropped substantially. Data indicates that both Ethereum and L2 have become more attractive to developers and projects post-upgrade.
Charts from L2beat clearly illustrate this growth—transaction volumes have steadily increased over time.
Additionally, Dune Analytics’ chart on the average number of blobs per block shows that blob usage has risen from around 1 blob per block in March to approximately 2.3 blobs per block today. This steady growth is largely driven by Ethereum’s guidance of various L2 solutions. In the coming weeks, we can expect blob demand to reach the target of 3 blobs per block, with fees stabilizing at market equilibrium levels.
From an economic perspective, lower gas fees have stimulated user demand. As the supply curve shifts from S1 to S2, the price equilibrium drops from P1 to P2, leading to an increase in demand from Q1 to Q2.
Owen, OKX Web3 Product Head: So far, although the overall transaction volume on Ethereum and L2 hasn’t shown explosive growth, assets are migrating to L2, and the total value locked (TVL) in L2 continues to rise. Activity on L2 has surged—for example, after the upgrade, Base’s daily active users (DAUs) increased by 560%, and daily transactions (DTXs) rose by 540%. Similarly, Optimism and Arbitrum saw DTX increases of 70% and 200%, respectively. These metrics confirm that the upgrade has attracted more traders, especially those conducting smaller transactions.
Foundation’s Reduced ETH Holdings Encourage Decentralization
Justin Drake: The EF is often seen as taking a hands-off approach to ecosystem development, a style that has occasionally sparked debate. I believe it’s positive that the EF’s role in the ecosystem is diminishing.
Today, the EF’s responsibilities are mainly limited to:
- Organizing annual events like Devcon or Devconnect, which are now just two among many conferences, with side events often being more significant than the main sessions.
- Maintaining one execution client—Geth, which is one of five execution clients. The EF does not maintain any consensus clients.
- Providing grants: offering tens of millions in unconditional funding to the broader community annually, which has led to a reduction in the EF’s ETH treasury. In the long run, it’s beneficial for the EF to hold less ETH. Currently, the EF controls 0.23% of the total ETH supply, and it’s healthy for this number to approach 0% over the coming decades, as it promotes greater decentralization within the Ethereum ecosystem.
- Coordinating calls: Many calls are hosted by EF members, such as the All Core Devs (ACD) call led by Tim Beiko, the All Devs Consensus (ACDC) by Alex Stokes, RollCall by Ansgar Dietrichs and Carl Beekhuizen, sequencing and pre-meetings that I host, and the MEV-boost call led by Alex Stokes.
👉 Explore real-time coordination efforts
- Research: This remains one of the more centralized areas, though some EF research teams may eventually become independent.
- Roadmap development: Vitalik updates the roadmap diagram, and dozens of projects are developed in parallel by different teams.
Owen, OKX Web3 Product Head: The EF should increasingly adopt an advisory role. The ecosystem has gained enough momentum to grow without relying heavily on key individuals. This allows for open and fair discussions, making Ethereum a community-driven project rather than one influenced by a single entity—aligning perfectly with the spirit of blockchain and transparent governance.
DeFi on Ethereum and Future Large-Scale Applications
Justin Drake: The Ethereum community maintains a strong technical focus, consistently tackling complex challenges. However, technology must ultimately serve user needs and real-world applications.
First, I expect existing DeFi sectors to grow tenfold over the next five years:
- Stablecoins: I hope to see $1 trillion in stablecoins, with a significant portion being decentralized.
- DEXs: The ratio of DEX-to-CEX trading volume should continue to increase.
- Lending markets: Projects like AAVE and Compound are likely to grow by approximately 10x.
- Prediction markets: Platforms like Polymarket could also see 10x growth.
- Derivatives: Liquid perpetual contracts, options, and futures will become widely available on Ethereum.
Beyond DeFi, I hope to see increased adoption of decentralized frontends using ENS and IPFS.
Owen, OKX Web3 Product Head: From a data perspective, Ethereum still leads in decentralized exchange (DEX) total value locked (TVL), though these numbers have declined compared to two years ago. The primary barrier to DeFi on Ethereum remains high transaction fees. A single transaction on Ethereum could fund hundreds on an L2, and market behavior naturally moves toward greater efficiency.
Recent technical developments, such as the push for EIP-4337 (Account Abstraction), address practical needs by reducing the entry barrier for Web2 users transitioning to Web3. This will serve as a foundational upgrade for future applications.
In the near future, users can expect a seamless, Web2-like experience while self-custodying their Web3 digital assets.
Global Adoption of Ethereum 2.0 and Its Appeal
Owen, OKX Web3 Product Head: Ethereum 2.0 has already achieved broad global adoption, attracting significant interest from both the blockchain world and traditional financial institutions.
The network scale and staking metrics are impressive—total staked value has reached hundreds of billions of dollars, with over 50,000 independent validator nodes participating in the consensus mechanism. TVL in DeFi has also grown notably post-Ethereum 2.0, thanks to the Proof-of-Stake (PoS) mechanism enabling more projects to operate with lower fees.
Major enterprises and institutions, including Microsoft, JPMorgan, and IBM, are actively integrating Ethereum 2.0 technology into supply chain management, financial transactions, and other applications.
For new users and developers, Ethereum 2.0 offers faster transactions and reduced costs, making the network more appealing. Developers can build and deploy dApps more efficiently, and new consensus mechanisms and sharding technologies allow for more innovative applications without high costs or performance bottlenecks.
These factors reflect strong confidence in Ethereum 2.0. However, attracting larger numbers of new users and developers still presents challenges, including high entry costs, a steep learning curve, intense market competition, and evolving regulatory landscapes.
Major Technical Advances in Ethereum 2.0
Owen, OKX Web3 Product Head: Staking and restaking are among the most significant advances.
With the shift to PoS, Ethereum has drastically reduced its energy consumption, creating opportunities for restaking. Providing security for other projects has become a key mission for Ethereum—a responsibility only a network of its scale can uphold.
Additionally, Vitalik’s recent proposal, EIP-7702, aims to enable user wallets to support smart contracts more effectively. This would simplify user experience, allow for more login options, and offer convenient features like social recovery and gas payments in non-native tokens—paving the way for mass Web2 user adoption.
Impact of PoS on Ethereum’s Decentralization
Owen, OKX Web3 Product Head: The effect of PoS on decentralization has been widely debated. In the long run, Ethereum 2.0’s consensus shift is beneficial. Ethereum aims to become the world computer, and all upgrades must support this goal by creating a better platform for decentralized applications.
PoS helps balance the impossible trilemma of decentralization, scalability, and security. In practice, PoW mining—though permissionless—became highly specialized, leading to centralization through mining pools and hardware dependencies. Before the transition, the top five mining pools controlled over 75% of the network’s hash rate.
Geographic concentration of mining also made the network vulnerable to regional policies, as seen with China’s 2021 mining ban. PoS reduces these risks.
The incentives and slashing mechanisms for validators have proven effective over the past two years, successfully mitigating various attack vectors. Ensuring fairness for smaller validators remains a focus, with proposals like Verkle trees and EIP-4444 aiming to lower hardware requirements and improve node synchronization.
Current State of Ethereum L2s and Rollups Potential
Owen, OKX Web3 Product Head: The Layer 2 landscape on Ethereum has become crowded, leading to fragmented liquidity and disjointed user interfaces—contrary to the original goal of scaling Ethereum. Users struggle to navigate multiple L2 ecosystems through a single entry point. OKX Web3 Wallet is actively exploring solutions to this issue.
From a product perspective, network effects will likely concentrate activity and liquidity around leading L2s, with smaller ones fading over time. Technologically, chain abstraction is emerging as a promising solution, allowing users to access L2s seamlessly through a single interface and cross-chain atomic swap providers.
Regarding Rollups, they offer a dual-sided impact:
Advantages:
- Scalability: Significantly higher transaction throughput and lower gas fees.
- Security: Using Ethereum as the data availability layer preserves security and decentralization.
- Ecosystem support: Broad developer and community backing.
- Flexibility and innovation: Supports complex smart contracts and dApps.
- Future scalability: Complements Ethereum’s sharding plans.
- Cost efficiency: Post-Dencun, data publication on the mainnet is cheaper.
Disadvantages:
- Data availability: Ensuring all data remains accessible and verifiable.
- Delay in withdrawals: Challenge periods can slow exits.
- Compatibility issues: Some incompatibilities exist between different Rollup networks.
- Centralization risks: Fewer nodes may lead to greater centralization.
Overall, Rollups enhance scalability, reduce costs, and strengthen security—making them a crucial part of Ethereum’s growth, despite existing challenges.
Security, Governance, Energy Efficiency, and Privacy in Ethereum 2.0
Owen, OKX Web3 Product Head: Security challenges in Ethereum 2.0 remain significant, including:
- PoS mechanism risks: Potential for large ETH holders to act maliciously.
- Validator decentralization: Over-representation of staking projects like Lido reduces decentralization.
- New attack vectors from sharding: Increased complexity introduces new risks.
- Economic incentives: Balancing rewards and penalties to deter attacks.
- Contract code: Upgrades must maintain backward compatibility.
Governance is evolving toward greater decentralization, with increased influence from stakers. The process is becoming more structured, though social governance remains important. Layer 2 solutions will also play a role in shaping future governance.
Energy efficiency has improved dramatically with PoS, reducing consumption by over 99%. However, storage overhead can still be optimized—for example, by transitioning from Merkle Patricia Trees to Verkle Trees.
Privacy technologies will focus on enhancing transaction anonymity, protecting user data, and balancing decentralization with regulatory compliance. Zero-knowledge proofs and quantum-resistant cryptography are key areas of development.
Ethereum’s Challenges Over the Next Decade and Long-Term Sustainability
Owen, OKX Web3 Product Head: Over the next 10 years, a major challenge will be reducing friction between L1 and L2, improving cross-chain user experience, and mitigating liquidity fragmentation. The goal is for L1 and L2 ecosystems to function as seamlessly as a single chain—a challenge teams like Polygon’s AggLayer are addressing.
Looking 30 years ahead, Ethereum is likely to remain relevant due to its established position as one of the most decentralized and enduring networks.
Frequently Asked Questions
What is Ethereum 2.0?
Ethereum 2.0 refers to a set of upgrades that transition the network from Proof-of-Work to Proof-of-Stake, improving scalability, security, and energy efficiency while introducing sharding and other enhancements.
How does staking work in Ethereum 2.0?
Users can stake ETH to become validators, helping secure the network and earning rewards in return. Validators are incentivized to act honestly through a system of rewards and penalties.
What are the benefits of Layer 2 solutions?
Layer 2 solutions enhance Ethereum’s scalability by processing transactions off-chain, reducing fees, and increasing throughput while maintaining the security of the mainnet.
Is Ethereum 2.0 more environmentally friendly?
Yes, the shift to Proof-of-Stake has reduced energy consumption by over 99%, making Ethereum significantly more sustainable.
What is account abstraction?
Account abstraction (EIP-4337) allows smart contracts to function as user accounts, enabling features like social recovery, batch transactions, and gas fee payments in tokens other than ETH.
How can developers start building on Ethereum 2.0?
Developers can use tools like Solidity, Hardhat, and Truffle, and deploy contracts on testnets before moving to mainnet. Resources and grants are available through the Ethereum Foundation and community programs.