Ethereum's upcoming Prague/Electra (Pectra) upgrade prioritizes optimization rather than a complete overhaul—a departure from the network’s often more substantial changes. With Pectra scheduled for mainnet activation in May 2025, this blog provides an overview of the most critical changes and what institutional investors should know.

Pectra introduces 11 Ethereum Improvement Proposals (EIPs), with five dedicated to staking optimizations. Developers continue to refine Ethereum’s proof-of-stake design two years after the Merge, prioritizing security and minimizing trust assumptions. 

However, this has led the network to fall behind its competition in some key network metrics. 

While an uptick in competition may have contributed to recent price underperformance, core developers remain keen not to rest on their first mover advantage. Ethereum’s roadmap is clear yet complex, and although many community members share the same vision, they often differ in prioritization. The key question for investors is whether this shared vision will take too long to manifest relative to Ethereum’s competition.

A key focus of the Pectra upgrade is the blob throughput increase, which has been in high demand due to the previous success of EIP-4844. The following section outlines the more technical aspects of this EIP and others. For readers seeking a less technical overview, key highlights and competitive insights are detailed in the section “Ethereum’s Priorities and Competitive Landscape.”

Key takeaways:

1. Blob throughput increase: This change will enable rollups to scale further, maintaining low fees within the Ethereum ecosystem and potentially facilitating the onboarding of new Layer 2 (L2) solutions.
2. Raising the maximum effective balance of validators: This adjustment benefits solo stakers by allowing them to compound rewards and maintain their network share. It increases the maximum balance without affecting the minimum, making staking easier and more beneficial for smaller operators.
3. Increasing calldata cost: This change reduces the maximum block size on Ethereum, working alongside the gas limit increase and indicates a renewed focus on Layer 1 (L1) scaling.

Blob Throughput

Increasing blob throughput is essential for enabling rollups to scale effectively. By keeping fees relatively low, this change ensures that rollups remain within the Ethereum ecosystem, facilitating the onboarding of new L2 solutions.

The chart “Blob Supply, Demand, and Fees” may seem counterintuitive as it suggests that the supply of blobs meets demand. However, whenever demand exceeds supply for more than one block, fees rise exponentially. 

One example of this occurred on June 19, 2024. The average fee per blob reached $42 after remaining near zero the prior day. Therefore, once supply saturation occurs, demand is forcibly stagnated. This underscores the importance of increasing the supply of blobs so that demand from L2s can continue growing, which has been a priority for developers and is the primary focus of the next upgrade (Fulu-Osaka).

Maximum Effective Balance

Both the maximum effective balance (the highest balance a validator can earn rewards on) and the minimum effective balance (the lowest balance required to become a validator) are currently set at 32 ether. The upgrade will increase the maximum effective balance to 2,048 ether but will keep the minimum effective balance at 32 ether. This ensures the barrier to entry for staking remains unchanged, while significantly increasing the amount of stake each validator can earn rewards on.

This change simplifies validator setups for larger operators and has a meaningful impact on solo stakers. Allowing rewards on balances above 32 ether enables solo stakers to keep their entire balance staked without needing to create multiple validators or deposit excess to other staking providers.

A potential downside is that more stake on a single validator increases the economic impact of slashing events. These events are relatively uncommon and typically occur at the onset of validator activity. However, these events may become more likely shortly after the upgrade since validators are likely to adjust their setups in response to this change. 

The proposed change aims to reduce network traffic by decreasing the number of messages that need to be exchanged. This is achieved by allowing fewer nodes to handle the same amount of staked ether, optimizing the use of node bandwidth. However, the incentives for large validators to consolidate their stake are not apparent, aside from potentially simplifying validator setups. Therefore, the potential impact on reducing bandwidth congestion is currently unknown.

Calldata Cost and L1 Scaling

Increasing the calldata cost reduces the maximum possible block size, helping prevent worst-case scenarios from excessively disrupting nodes. The community has also simultaneously prioritized L1 transactions by increasing the gas limit of Ethereum. This dual improvement lowers the maximum possible block size while also increasing the average throughput of the Ethereum L1.

Calldata, which is used to post bytes of data into Ethereum blocks, currently has a maximum gas cost of 16. If an entire block were filled with calldata, it could be as large as ~2.2 megabytes (36 million gas / 16 gas per byte). By increasing the gas cost of calldata to 40, as this proposal aims to do, the maximum possible block size decreases to just 0.9 megabytes (36 million gas / 40 gas per byte).¹

Over the past year, the daily average size of Ethereum blocks ranged from 0.25 to 0.6 megabytes, highlighting the potential extra load on nodes if blocks were filled with calldata. Given this significant reduction in the maximum possible block size, many validators supported an increase to the average block size (gas limit) and adjusted their node configurations to accept blocks as large as 36 million gas. This gas limit increase occurred on February 4, 2025, and represents a 20% increase in the throughput of the L1. It remains to be seen whether this change lowers fees for users, a long-awaited improvement.

Looking Ahead

Data Availability Market

The demand for data availability (DA) has surged as more L2 solutions emerge. DA is a service Ethereum offers to L2 blockchains, allowing them to post their data to Ethereum, so validators can verify whether all the data is available, should users on the L2 want to confirm its correctness. As these new L2s evaluate which environments best suit their needs, some are opting to post data elsewhere due to Ethereum’s current DA limitations. 

For instance, the increase from three blobs (384 kilobytes) to six blobs (768 kilobytes) in the Pectra upgrade may not effectively support the numerous rollups expected to launch in 2025. Celestia, an L1 blockchain specialized for DA, and others with larger block sizes and shorter block times, offer significant advantages in DA. This has been a core driver of developers’ focus on prioritizing blob throughput over the next several upgrades.

Ethereum's current data capacity translates to approximately 210 transactions-per-second (TPS), using 32 KB/s and 150 bytes per transaction.² With the Pectra upgrade, this value significantly increases to about 420 TPS. As L2s frequently increase their gas limits to accommodate more users—and with new L2s launching—it seems likely that the new blob space target will reach saturation within the year, similar to what happened following the introduction of blobs in 2024.

Ethereum co-founder Vitalik Buterin recently highlighted potential future scaling capabilities. He projected an increase of two to four times in blob capacity with PeerDAS, and an end goal of 128 blobs per slot.³ This equates to roughly 100,000 TPS or 8.6 billion transactions per day, assuming a transaction size of 150 bytes. It is also likely that L2s will significantly improve their data compression, enabling a higher number of transactions per byte and rendering the previous assumption conservative.

The vision of 128 blobs per block, each paying a small fee ($1–10), is the bullish outcome for all Ethereum investors and users. This scenario could generate anywhere between $330 million to $3.3 billion in annual fees from blob space, while still offering low fee transactions for users and maintaining current L2 margins.

It is important to note that Ethereum nodes are currently unable to manage this amount of data and are likely several years away from providing that supply. Additionally, this brief analysis assumes that demand for blobs meets the supply, which would require a prolonged exponential increase in demand from users.

However, the longer-term vision is clear for users and investors: Many users paying a small fee equals a significant number.

many users x small fees = significant number.

Ethereum's Priorities and Competitive Landscape

It is important that investors understand the vision outlined above has remained consistent for several years despite recent negativity surrounding the network. These growing concerns may instead be related to natural growing pains.

Ethereum prioritizes network health (security) and trust minimization alongside scaling, which has caused a perceived split in narratives. While Ethereum juggles many priorities, other chains can boast a singular focus, mostly around scaling. 

The multi-pronged approach has helped Ethereum maintain its position as the most secure and decentralized smart contract platform. However, this comes at the cost of scaling competitiveness. In contrast, many alternative L1s specialize around a specific narrative such as high TPS or low fees. While this specialization can drive user engagement and revenue, it potentially delays addressing issues like centralization and security should they ever arise. 

Ethereum’s conflicting narrative could be attributed to its focus on a well-rounded approach and the difference in opinions that this brings. Efforts to enhance security and censorship resistance are what set Ethereum apart and likely why it maintains its position as the second-largest digital asset by market cap. Users, investors, and developers value security, especially so when handling large sums of money. 

However, these priorities come with trade-offs. User preference for low latency and cost-effective transactions is abundant. It seems likely that competition—notably, Solana—could continue to gain meaningful users, transactions, and value transacted.

Ethereum currently competes across three blockchain sectors: Data Availability, Execution, and Monetary Properties. It is this author’s view that no other chain currently matches Ethereum on all three fronts—but the gap is narrowing.

Bitcoin is perhaps the closest competitor with its strong monetary properties, and 2025 may see increased demand for Bitcoin execution environments with the rise of bitcoin L2s.⁴ Ethereum may lag behind its competition over the next few years in terms of data availability and execution, but it could still provide the best services given its liquidity and developer ecosystem.