The Ethereum network has seen a significant decline in activity following the Shanghai upgrade in April, according to a research report released by JPMorgan on Thursday. The bank noted that Ethereum's daily transactions count has fallen 12% since the upgrade, daily active addresses have dropped nearly 20%, and the total value locked (TVL) in decentralized finance (DeFi) protocols on the network has slumped almost 8%.
The analysts, led by Nikolaos Panigirtzoglou, pointed out that while the shift from proof-of-work (PoW) to proof-of-stake (PoS) resulted from the Merge upgrade had reduced the energy consumption of the Ethereum network by more than 99%, and staking had risen sharply by 50% since the Shanghai upgrade, the increase in network activity had been disappointing.
They attributed this decline in activity to several "bearish forces" that have persisted over the past year. These include regulatory uncertainties and enforcement actions in the U.S., declining institutional interest in cryptocurrency, reduced venture capital investment, and incidents involving FTX and Terra. JPMorgan analysts believe these factors may have outweighed the positive impact of the Shanghai upgrade.
The bank also expressed concerns about centralization due to a high share of liquid staking protocols such as Lido. Furthermore, they highlighted a massive validator concentration on Ethereum's network with nearly 800,000 active validators, marking a 41% surge since the introduction of the "Shapella" upgrade in April.
Despite these challenges, there is hope for an increase in Ethereum network activity with the upcoming EIP-4844 upgrade or Protodanksharding, planned for Q4 2023. Protodanksharding introduces data-containing blobs which are temporary data packets appended to blocks, capable of accommodating more data than the blocks themselves. However, the analysts cautioned that "persistent negative crypto factors continue to pose challenges."
The Ethereum community has responded to JPMorgan's observations, with some enthusiasts suggesting that the bank's analysis overlooks improvements in Ethereum's Layer-2 solutions. As of now, the ETH price is trading under $1,600 levels.
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