JPMorgan: Ethereum’s Shanghai Upgrade Falls Short of Expectations

Disappointment in Ethereum’s Post-Upgrade Performance

Ethereum’s highly anticipated Shanghai upgrade, implemented in April, has not delivered the expected boost in activity on the world’s largest smart contract blockchain, according to a research report by JPMorgan.

The Consequences of the Shanghai Upgrade

While the shift from proof-of-work (PoW) to proof-of-stake (PoS) resulting from the Merge upgrade significantly reduced Ethereum’s energy consumption by over 99%, the network has not seen a corresponding increase in activity. Analysts led by Nikolaos Panigirtzoglou note several concerning trends:

– Daily Transactions: Ethereum’s daily transaction count has dropped by 12% since the Shanghai upgrade.
– Daily Active Addresses: Daily active addresses on the network have fallen by nearly 20%.
– DeFi Value Locked: The total value locked (TVL) in decentralized finance (DeFi) on Ethereum has slumped by almost 8%.

Bearish Forces Weighing In

JPMorgan suggests that various “bearish forces” over the past year may have offset the potential positive impact of the Shanghai upgrade. These forces include the collapse of Terra and FTX, increased U.S. regulatory scrutiny, and a contraction in the stablecoin market.

Staking and Questions of Centralization

While staking has surged by 50% since the Shanghai upgrade, contributing to network security, concerns arise about the “share of liquid staking protocols,” particularly Lido. This raises questions about the level of centralization within the network.

Hope on the Horizon: EIP-4844 Upgrade

The report holds out hope for an increase in Ethereum network activity with the upcoming EIP-4844 upgrade, also known as Protodanksharding, planned for the fourth quarter of this year. However, the report acknowledges that “continued bearish crypto forces remain a headwind.”

Understanding EIP-4844 (Protodanksharding)

EIP-4844, or Protodanksharding, represents a potential turning point for Ethereum. Expected in Q4 2023, this upgrade holds promise for revitalizing network activity and addressing some of the concerns raised after the Shanghai upgrade.

The Ethereum community eagerly awaits this development as they navigate the evolving landscape of blockchain and cryptocurrency.


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