- JPMorgan’s report suggests that Ethereum’s Shanghai upgrade, which introduced proof-of-stake (PoS) as part of the Merge upgrade, has not met expectations.
- The report reveals that daily transactions on the Ethereum network have decreased by 12%.
- Daily active addresses have fallen by over 20%, and the total value locked (TVL) in decentralized finance (DeFi) applications has dropped by approximately 8% since the upgrade.
According to a recent report from JPMorgan dated September 21, 2023, it appears that Ethereum’s much-anticipated Shanghai upgrade rolled out in April of this year, hasn’t quite lived up to the expectations on the world’s leading smart contract platform.
JPMorgan’s chief analyst, Nikolaos Panigirtzoglou, highlights a few key points. Firstly, the transition from proof-of-work (PoW) to proof-of-stake (PoS) as part of the Merge upgrade has significantly reduced Ethereum’s energy consumption by over 99%, which is a positive environmental development. However, there are some concerns.
One of the major concerns is the diminishing supply of Ether on the Ethereum network. While there has been a substantial increase in staking since the Shanghai upgrade, which has enhanced network security, it hasn’t been accompanied by the expected surge in network activity.
The JPMorgan report outlines some concerning statistics. Daily transactions on the Ethereum network have decreased by 12%, daily active addresses have fallen by more than 20%, and the total value locked (TVL) in decentralized finance (DeFi) applications on Ethereum has dropped by approximately 8% since the Shanghai upgrade.
JPMorgan attributes this decline in network activity to a combination of factors that have been acting as “bearish forces” throughout the past year. These include challenges faced by projects like Terra and FTX, regulatory crackdowns in the United States, and a contracting stablecoin market. These factors may have offset the positive impacts of the Shanghai upgrade, according to the bank’s analysis.
Despite the 50% increase in staking that has occurred post-Shanghai, which contributes to network security, JPMorgan expresses reservations about the growing prevalence of liquid staking protocols like Lido, which could introduce centralization risks into the ecosystem.
It’s worth noting that the Merge, which shifted Ethereum from the energy-intensive PoW to the more eco-friendly PoS consensus mechanism, took place in September 2022, while the Shanghai upgrade, allowing the withdrawal of staked Ether (stETH), was introduced in April 2023. DeFi encompasses various blockchain-based financial activities such as lending and trading, and the total value of assets locked in a DeFi protocol is referred to as TVL.
Looking ahead, the JPMorgan report suggests that Ethereum’s upcoming EIP-4844 upgrade, also known as Protodanksharding, could hold the potential for a substantial boost in network activity. However, it does caution that “continuing bearish crypto forces remain a headwind.”
The Protodanksharding upgrade is eagerly anticipated within the cryptocurrency sector, with experts believing it could bring about a significant uptick in Ethereum network activity. Nevertheless, it’s essential to remain mindful of the ongoing negative factors within the crypto market that could pose challenges.
Protodanksharding is seen as an important initial step toward the full implementation of danksharding, a concept distinct from the originally envisioned sharding method. Danksharding introduces data-containing blobs, temporary data packets linked to blocks with greater data capacity than the blocks themselves. This innovation is expected to benefit Layer 2 networks like Arbitrum and Optimism by providing additional temporary data space for Layer 2 rollups, potentially enhancing network speed and reducing transaction costs. Originally planned for Q4 of this year, Protodanksharding may now be anticipated in Q1 of 2024.