The Road Ahead for Rollups and EIP4844

Key Insights

• The rollout of EIP4844, likely in H1 2024, will provide rollups with potentially 10x cheaper cost to use Ethereum as a Data Availability (DA) solution.
• The operating cost reduction rollups gain will likely create significant decreases in top-line revenue, as well. Rollups generate revenues from transaction fees, and competitive forces to drive fees as low as possible will be primarily responsible for these revenue reductions.
• Rollups can leverage a lower operating cost landscape to attract new users or new rollups to launch with their tech stacks, offsetting the loss of current revenue levels with net new user activity.
• Even with the prospects of high growth potential, rollup native tokens will need to generate creative solutions to attain a monetary premium that other smart contract platform tokens currently hold.

Rollups have long been touted as one of the primary methods of scaling the Ethereum network. Now, with numerous rollups live and in production, users are able to take advantage of the lower transaction costs these platforms offer. Rollups routinely offer 10x cheaper fees than Ethereum mainnet.

The lower transaction fees offered by rollups are due to the fact that they perform the computation and transaction execution that the Ethereum mainnet typically handles. Once transactions are processed on rollups, they must post the associated transaction data to Ethereum, which functions as the DA layer. Storing data on Ethereum is expensive, much to the chagrin of rollups. Over the course of 2023, Arbitrum alone spent over $46 million in data publishing costs to Ethereum.