In April, Ethereum underwent the highly anticipated Shanghai upgrade, which was expected to usher in a new era of increased activity and efficiency on the world’s largest smart contract blockchain. However, according to a recent research report by JPMorgan, the results have not met the high expectations set by the crypto community.
The key highlight of the Shanghai upgrade was the transition from the energy-intensive Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). This transition led to a remarkable 99% reduction in the Ethereum network’s energy consumption. Additionally, staking on the network saw a significant surge. Despite these positive developments, the increase in network activity has been surprisingly lackluster, the report revealed.
Analysts Nikolaos Panigirtzoglou pointed out several concerning trends since the Shanghai upgrade. Ethereum’s daily transaction count has dropped by 12%, daily active addresses have declined nearly 20%, and the Total Value Locked (TVL) in decentralized finance (DeFi) on the Ethereum blockchain has slumped by almost 8%.
The report suggests that various bearish forces over the past year may have outweighed the positive impact of the Shanghai upgrade. These forces include the collapse of prominent crypto projects like Terra and FTX, the intensification of regulatory scrutiny in the United States, and a shrinking stablecoin universe.
While staking has increased by an impressive 50% since the Shanghai upgrade, which contributes to enhanced network security, JPMorgan highlights a potential issue with the concentration of staked assets in liquid staking protocols, such as Lido. This concentration raises concerns about centralization within the Ethereum ecosystem.
The Merge upgrade, which occurred in September 2022, marked a critical milestone in Ethereum’s evolution, shifting from PoW to PoS. In April 2023, the Shanghai upgrade allowed the withdrawal of staked ether (stETH). DeFi, including lending and trading, has driven Ethereum’s growth, measured by TVL (Total Value Locked) in DeFi protocols.
Despite disappointment from Shanghai, the hope for network activity growth lies with the upcoming EIP-4844 (Protodanksharding) upgrade. However, a JPMorgan report warns of bearish crypto market forces and ongoing uncertainties.