Ethereum is not only the second biggest cryptocurrency after Bitcoin with USD 196 billion in Marketcap, but also one of the biggest ecosystems in the crypto space. It has more than 1400 protocols built on top of it, more than 50 layer twos that use its network for security, 300K daily users using its main network and more than 4x users on its layer twos.
It’s the home of USD 120 billion worth of stable coins (50% market share), USD 9 billion worth of real-world assets on-chain (90% market share) and USD 4 billion in daily DEX volume (56% market share). Despite ecosystem dominance, Ethereum faces user friendliness and scalability challenges.
Ethereum is constantly challenged by new and emerging smart contract platforms like Solana, Binance Smart Chain and even newer chains like Sui and Aptos that promise higher transaction throughput and lower transaction costs.
To keep up with growth in userbase and competitiveness among other L1s, Ethereum has gone through over 20 major improvements since launching in 2015.
Two particularly transformative upgrades include the 2022 Paris upgrade (commonly known as “The Merge”), which transitioned Ethereum from Proof of Work to Proof of Stake, enabling ETH staking rewards; and the 2024 Dencun upgrade, which dramatically reduced fees on Layer-2 solutions, catalysing significant growth in L2 ecosystems like Base, Arbitrum, Optimism, etc.
In its roadmap of scalability and network efficiency, Ethereum is preparing for its next significant upgrade called Pectra, set for implementation on 7 May 2025. Let’s understand Pectra and its implications in detail.
Core improvements under Pectra (Prague + Electra):
- Higher Maximum Effective Balance for Validators: The increase in the maximum effective balance for validators from 32 ETH to 2,048 ETH, which will simplify staking for large-scale validators by allowing them to manage larger stakes under a single node.
- Auto-compounding rewards: A new validator type will be introduced to allow for the maximum effective balance upgrade. Staking rewards will now be automatically restaked, enabling auto-compounding.
- Faster and Cheaper Transactions: The update will optimise how data is stored and processed, which should lower transaction fees and make transactions quicker for everyone using Ethereum-based applications.
Key technical proposals in Pectra:
Validator Enhancement Proposals
EIP-7251: Enhanced Validator Capacity
ThE proposed upgrade transforms Ethereum’s staking architecture by expanding validator capacity from 32 ETH to 2048 ETH per validator, also enabling auto-compounding of consensus layer rewards. This should result in 1-1.5% additional rewards on staking.
While the minimum 32 ETH requirement remains, validators can now earn rewards on much larger deposits within a single validator instance. This creates new opportunities for stakers – someone holding 40 ETH can now earn rewards on their full balance through one validator, rather than having 8 ETH remain unproductive. Previously, utilising that additional ETH would have required gathering enough for a complete second validator. This change particularly benefits those with holdings just above the previous 32 ETH threshold.
EIP-6110: Streamlined Validator Onboarding
This improvement accelerates the validator activation workflow by processing staking deposits directly through Ethereum’s execution layer. This approach reduces waiting periods and simplifies the staking journey (~13 mins as compared to ~12 hrs), allowing validators to begin earning rewards more rapidly and enhancing network responsiveness.
EIP-7002: Simplified Withdrawal Process
The proposal allows validators to exit the staking system via standard Ethereum transactions rather than navigating the technically demanding Beacon Chain withdrawal mechanism. This accessibility improvement lowers barriers for stakers looking to unstake their ETH, offering greater liquidity flexibility.
EIP-7549: Validator Consensus Optimisation
This enhancement refines validator attestation (voting) methods, creating a more efficient consensus process that conserves computational resources. The optimisation helps maintain system performance as validator participation grows, ensuring Ethereum’s consensus layer scales effectively.
Layer-2 Scaling Improvements
EIP-7691: Expanded Data Availability
This critical scaling proposal doubles per-block blob data allocation from three to six blobs (with maximum capacity rising from six to nine). For users of layer-2 networks using Optimistic or ZK-rollup technology, this means lower transaction fees as these systems can package more transactions per Ethereum block, distributing costs across higher volumes and reducing network congestion.
EIP-7623: Strategic Call Data Pricing
The economic adjustment increases the gas cost for call data, encouraging developers to utilise the more efficient blob storage system. This calibration promotes layer-2 fee reduction while preserving stability for standard Ethereum transactions.
EIP-7840: Adaptive Blob Configuration
This forward-looking improvement enables blob capacity adjustments without requiring comprehensive protocol upgrades. This flexibility supports sustainable scaling and more responsive management of network demands.
User Experience & Developer Enhancements
EIP-7702: Transaction-Level Smart Functionality
The proposal allows standard wallets to temporarily function as smart contracts during transactions, enabling sponsored gas payments, advanced authentication options, and transaction batching. This represents a significant step toward more intuitive and powerful wallet capabilities.
EIP-7685: Layer Communication Protocol
The proposal establishes standardised communication pathways between Ethereum’s execution and consensus layers, improving validator operation efficiency and reducing system delays.
EIP-2537: Cryptographic Processing Optimisation
This enhancement adds specialised processing for advanced cryptographic operations such as BLS signatures and zero-knowledge proofs, reducing computational costs for layer-2 solutions, rollups and cross-chain bridges.
EIP-2935: Extended Historical Data Access
On-chain block history retention increases from 51 minutes to 27 hours, benefiting smart contracts that rely on historical data while enhancing functionality for rollups, randomness applications, and cross-chain bridges.
Future Scaling Challenges
While Ethereum’s business model focuses on providing security and settlement services for external networks, its success depends on keeping pace with layer-2 adoption. Without substantial increases to blob capacity beyond what’s currently planned, Ethereum could return to high fee levels, negating the cost benefits intended by the layer-2 approach. The network must address these constraints to maintain its position as the backbone of decentralised applications and settlement infrastructure.
Future planned upgrades like PeerDAS and Fusaka aim to further increase blob capacity, addressing these potential scaling limitations.
Conclusion
Following the Pectra upgrade, Ethereum’s next significant development is the Fulu-Osaka upgrade, expected to roll out by late 2025 or early 2026. A key feature of this update is the introduction of Verkle trees—a new data structure designed to enhance Ethereum’s speed, simplicity, and security.
Verkle trees reduce the amount of data validators need to store, enabling them to verify transactions efficiently without relying on the entire history of the blockchain.
Ultimately, this makes Ethereum more scalable and robust, positioning it to better support its growing role as the leading platform for DeFi, gaming, real-world asset tokenization, and beyond.
We’re closely monitoring the forum for updates on the upgrade and actively evaluating its impact. Stay tuned for insights into future Ethereum upgrades and our analysis of their implications.
Disclaimer – Research
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