# The significance of the Ethereum Shapella upgrade to the future development of DeFi

Ethereum is one of the main infrastructures in the DeFi ecosystem. According to incomplete statistics, about 60% of DeFi's total locked value (TVL) is built on Ethereum. Ethereum is also the birthplace of DeFi innovation, and many DeFi innovations originate from the Ethereum ecosystem. However, in the early stage of the development of Ethereum, the slow transaction speed and high transaction fees restricted the development of DeFi, especially in the stage of rapid development of DeFi, this problem is more obvious. In order to continuously optimize and improve Ethereum, similar to the upgrade of the mobile phone system we use, the upgrade of Ethereum becomes necessary. These upgrades, including the Shapella upgrade, will continue to promote the development of DeFi and are expected to open the prelude to the DeFi 3.0 era.

* **The important content of the Ethereum Shapella upgrade - the redemption mechanism promotes the decentralization of the Ethereum network**

Every upgrade of Ethereum is dedicated to pushing Ethereum one step closer to the "world computer". As one of the main infrastructures of DeFi, Ethereum is also breaking the bottleneck of DeFi in the continuous technological upgrading, and it is more expected to usher in the era of DeFi 3.0. The upcoming Ethereum Shapella upgrade on <mark style="color:blue;">**April 13, 2023**</mark> includes the ion and the Capella upgrade of the consensus layer. This upgrade will solve three key issues of the Ethereum network: simplifying the execution engine of the Ethereum Virtual Machine (EVM), improving the redemption flexibility of pledged ETH, and reducing the Gas fee of Layer 2. This upgrade mainly covers five Ethereum Improvement Proposals (EIP): EIP-4895, EIP-3860, EIP-3651, EIP-3855, and EIP-6049.&#x20;

These agreements mainly involve the following aspects: increase the flexibility of redemption of pledged ETH Responsibility, expand the code capacity of smart contracts to reduce Gas consumption, introduce the block first transaction reward mechanism, reduce meaningless Gas consumption, and avoid unexpected results caused by misoperation or malicious attacks. Overall, the main technical content of the Shapella upgrade is to enhance the redemption mechanism for pledged ETH.&#x20;

The content of the "redemption mechanism" in this upgrade will stimulate more validators to participate, and promote the further decentralization of the Ethereum network and improve network security. Since Ethereum PoS went live, stakers have had to stake their funds. Through this upgraded "redemption mechanism", the full operation of the PoS blockchain can become a reality. This means stakers can finally have control of their personal funds.&#x20;

In Ethereum governance, stakers play an important role, influencing the future direction of Ethereum through voting, and jointly building and protecting the security and credibility of the Ethereum blockchain. They can delegate the operation of running validators to a third party, but the onus remains on choosing the right partners to maintain the characteristics of Ethereum. Every member of the Ethereum community participates in the governance process, and the role of stakers is particularly important. By increasing the portability of staking, withdrawals will lead to increased competition among staking providers, unlocking liquid value in Ethereum is also likely to drive network growth and global adoption.

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* **Ethereum Shapella upgrade kicked off the real breakthrough of Layer 2 - the prelude to the upgrade of Cancun**

The Shapella upgrade is an important upgrade of Ethereum. In addition to the "redemption mechanism", the purpose of this upgrade is to increase the speed of blockchain transactions and reduce costs, while promoting the development of DeFi. One of the important goals is to improve the efficiency and performance of data processing by dividing data into multiple smaller parts and performing processing operations on these parts in parallel in order to be able to carry out the next step of sharding technology upgrade smoothly.&#x20;

However, many EIPs that were considering an upgrade were not able to be included in this upgrade due to capacity already being capped. The content proposal improvements included in the Shapella upgrade could help drive the development of Layer 2, a scaling technology on Ethereum, making transactions faster and cheaper. The Layer 2 solution is to transfer transactions from the main chain to side chains or other solutions, thereby increasing transaction speed and reducing costs. Some of the most promising Layer 2 projects right now include Optimism, Arbitrum, zkSync, and StarkNet. But the real breakthrough of Layer 2 may have to wait until the next important upgrade-Cancun upgrade.&#x20;

EIP-4844 is the first EIP written into the specification after the Capella upgrade in the Shapella upgrade. Layer 2 needs to use the Call Data released on Layer 1, which is crucial to the security mechanism of Layer 2. But at present, the cost of publishing Call Data on Layer 1 is very high, accounting for more than 80% of Layer 2 transaction fees. Therefore, in order to reduce costs, more data space needs to be created on Ethereum Layer 1.&#x20;

EIP-4844 focuses on solving this problem, thereby reducing Layer 2 transaction fees, providing support for future data sharding applications, and introducing a multi-dimensional charging market mechanism that separates the use and charging of different types of resources. With the implementation of EIP-4844, Layer 2 will become more competitive and provide greater potential for future development.

With the increase of DeFi applications, the transaction volume and load of the blockchain network will become larger. Therefore, the Layer 2 solution is a technology that solves the problem of blockchain transaction speed and expansion, and is one of the technologies necessary for the development of DeFi. Looking ahead, DeFi 3.0 may require more technical support to meet the challenges of DeFi development, such as secure protocols, sustainable models, efficient transaction processing, strong privacy protection, and better interoperability. In addition, with the continuous evolution of blockchain technology, DeFi 3.0 may also face new technical challenges and opportunities.
