JPMorgan Highlights Ethereum's Shanghai Upgrade as a 'Missed Opportunity

After the implementation of the upgrade, a recent analysis report points out a decline in daily transactions, active addresses, and the total locked value within the Ethereum network.

JPMorgan's most recent research report, released on Thursday, contends that the Shanghai upgrade of Ethereum, which was rolled out in April, did not yield the expected surge in activity on the world's largest smart contract blockchain.

The shift from proof-of-work (PoW) to proof-of-stake (PoS) brought about by the Merge upgrade led to a significant 99% decrease in the energy consumption of the Ethereum network. However, despite a notable uptick in staking and a decrease in the supply of ether, the growth in network activity did not meet projections, according to the analysis led by Nikolaos Panigirtzoglou.

The bank underscores that the daily transaction volume of Ethereum has fallen by 12% since the Shanghai upgrade, and active addresses have experienced an almost 20% drop. Furthermore, the total value locked (TVL) in decentralized finance (DeFi) on the blockchain has dwindled by nearly 8%.

This decrease in network activity suggests that the negative factors of the past year, such as the collapses of Terra and FTX, the regulatory clampdown in the U.S., and a contracting stablecoin market, may have outweighed the positive impact of the Shanghai upgrade, as assessed by the bank.

While staking has risen by 50% since the Shanghai upgrade, thereby enhancing network security, the bank expresses concerns about the dominance of liquid staking protocols, particularly Lido, and the potential implications for centralization.

The Shanghai upgrade (JPMorgan)

The Merge, which took place in September 2022, involved a transition from the more energy-intensive PoW to the PoS consensus mechanism. The Shanghai upgrade, implemented in April of the current year, enabled the withdrawal of staked ether (stETH). DeFi encompasses a wide array of financial activities conducted on a blockchain, including lending and trading. TVL represents the collective value of cryptocurrency assets deposited in a DeFi protocol.

The report offers a more optimistic outlook for a substantial surge in Ethereum network activity with the upcoming EIP-4844 upgrade, also known as Protodanksharding, scheduled for the fourth quarter of this year. Nevertheless, the report advises that the enduring bearish trends in the crypto space may continue to pose challenges.

The Ethereum Improvement Proposal (EIP)-4844, or Protodanksharding, is set to be implemented in the fourth quarter of this year.

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