Crypto Report: Ethereum’s Activity Decline Post Shanghai Upgrade Raises Concerns

Crypto Report: Ethereum’s Activity Decline Post Shanghai Upgrade Raises Concerns

Crypto News – In a recent research report, JPMorgan (JPM) highlighted that Ethereum’s anticipated boost in activity following the Shanghai upgrade, implemented in April, has not materialized for the world’s largest smart contract blockchain.

The transition from proof-of-work (PoW) to proof-of-stake (PoS) through the Merge upgrade significantly reduced Ethereum network’s energy consumption by over 99%. However, despite a reduction in energy usage, the increase in network activity fell short of expectations, as pointed out by analysts led by Nikolaos Panigirtzoglou.

The report outlined a 12% decrease in Ethereum’s daily transaction count, nearly a 20% drop in daily active addresses, and an almost 8% slump in the total value locked (TVL) within decentralized finance (DeFi) on the Ethereum blockchain.

This decline in network activity is indicative of the prevailing “bearish forces” over the past year, including the collapses of Terra and FTX, increased regulatory scrutiny in the United States, and a contracting stablecoin landscape, potentially outweighing the positive impacts of the Shanghai upgrade.

Although staking witnessed a 50% surge post the Shanghai upgrade, contributing to enhanced network security, concerns were raised about the dominance of liquid staking protocols like Lido, prompting questions about centralization, as noted by the bank.

The Merge, which occurred in September 2022, marked a shift from the energy-intensive PoW to the PoS consensus mechanism. The subsequent Shanghai upgrade in April enabled the withdrawal of staked ether (stETH). DeFi encompasses a range of financial activities conducted on a blockchain, including lending and trading. TVL represents the total value of cryptocurrency assets deposited in a DeFi protocol.

The report expressed optimism for a potential substantial increase in Ethereum network activity with the upcoming EIP-4844 upgrade, also known as Protodanksharding, anticipated in the fourth quarter of this year. However, it cautioned that persisting bearish forces in the crypto landscape could continue to pose challenges.