Benzinga – The modernization of Shanghai for Ethereum (CRYPTO:ETH), rolled out in April, did not drive the expected surge in activity on the leading smart contract blockchain, according to a recent research report from JPMorgan.
The bank’s analysis, which will likely be a topic of discussion at Benzinga’s Future of Digital Assets conference on November 14, highlights that despite the transition from proof of work (PoW) to proof of stake (PoS), reducing Ethereum’s energy consumption by more than 99%, the expected increase in network activity has not materialized, reports CoinDesk.
The bank’s report, led by Nikolaos Panigirtzogloustates, “the increase in network activity has been rather disappointing.”
JPMorgan’s findings indicate a 12% drop in daily Ethereum transactions since the Shanghai upgrade. Additionally, there was a nearly 20% drop in daily active addresses and a nearly 8% decrease in total value locked (TVL) in decentralized finance (DeFi) on the blockchain.
The bank suggests that the slowdown in network activity could be due to “downward forces” from the previous year, including the fall of Terra and FTX, US regulatory measures and the contraction of the stablecoin market, which could have overshadowing the positive effects of the Shanghai Upgrade, according to CoinDesk.
Even though staking increased by 50% after the Shanghai upgrade, improving network security, JPMorgan expressed concerns that “the share of liquid staking protocols such as Pool remains uncomfortably high, raising questions about centralization.
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As a reminder, The Merge, which took place in September 2022, marked Ethereum’s transition from the energy-consuming PoW consensus mechanism to the PoS consensus mechanism.
The Shanghai upgrade, introduced in April, made it easier to withdraw staked ether (stETH).
DeFi encompasses blockchain-based financial activities such as lending and trading, while TVL represents the cumulative value of crypto assets held in a DeFi protocol.
JPMorgan analysts conclude with a more optimistic outlook for Ethereum, highlighting the potential increase in network activity with the upcoming EIP-4844 or Protodanksharding upgrade, reports Coinbase.
However, the bank warns that “persistent bearish crypto forces remain a headwind.”
EIP-4844, also known as Protodanksharding, is expected to launch in the last quarter of the year.
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