Ethereum, one of the leading blockchain platforms, underwent a significant upgrade known as the Shanghai upgrade a year ago. This upgrade aimed to enhance network activity and strengthen the decentralized finance (DeFi) ecosystem. However, a recent report from JPMorgan suggests that the upgrade has not met expectations, as the network’s activity has decreased since then.
The Shanghai upgrade was a crucial milestone for Ethereum, transitioning the blockchain from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. This shift was intended to decrease energy usage and increase network activity. However, according to JPMorgan’s analysis, Ethereum’s network activity has experienced a decline after the hard fork.
JPMorgan’s report highlights that daily transactions on the Ethereum network have decreased by approximately 12% since the Shanghai upgrade. Additionally, the number of daily active addresses on the blockchain has fallen by nearly 20%, indicating a decrease in user engagement and participation. The Total Value Locked (TVL) in DeFi has also witnessed a slump of almost 8%.
External Factors Influencing Ethereum’s Performance
JPMorgan’s analysts suggest that several external factors in the crypto environment may have influenced Ethereum’s performance after the Shanghai upgrade. One significant challenge is the bearish forces in the crypto market, which have experienced setbacks in projects such as Terra and FTX in the past year. These incidents, coupled with regulatory actions in the United States, have created uncertainty and caution among investors and users.
Another challenge for Ethereum is the decline in stablecoin supply. Stablecoins play a crucial role in providing liquidity and facilitating trading in the Ethereum ecosystem. A decrease in stablecoin supply can negatively impact network activity and DeFi protocols, potentially contributing to the observed decline.
Furthermore, there are concerns about centralization in Ethereum, despite the rise in staking activity, which has increased by 50% since the Shanghai upgrade. The emergence of Liquid staking protocols like Lido has raised concerns about power concentration within the network.
Despite these challenges, JPMorgan’s analysts believe that there is hope for Ethereum. The blockchain platform is preparing for another upgrade known as EIP-4844, or Protodanksharding, scheduled for implementation in the fourth quarter of this year. EIP-4844 aims to address some of the shortcomings observed after the Shanghai upgrade, including enhancing scalability, increasing transaction throughput, and improving overall network performance.
However, the report also warns that ongoing bearish forces in the cryptocurrency market may still pose challenges for Ethereum, casting some doubt on the potential positive impact of the upcoming upgrade.
The Shanghai upgrade was a significant milestone for Ethereum, signaling a shift towards a more energy-efficient consensus mechanism. However, JPMorgan’s report suggests that the upgrade has fallen short of its expectations, with a decrease in network activity and user engagement. External factors such as bearish market forces and regulatory actions have contributed to these challenges. The decline in stablecoin supply and concerns about centralization further compound the issues faced by Ethereum. Despite these challenges, the upcoming EIP-4844 upgrade offers hope for addressing some of the observed shortcomings. However, the cryptocurrency market’s ongoing bearish trend still poses significant challenges for Ethereum’s future.