JPMorgan Report Highlights Ethereum's Post-Shanghai Performance Woes

The Shanghai upgrade for Ethereum was anticipated to significantly attract institutional interest by enabling the withdrawal of staked Ether. However, a recent analysis by JJ.P. Morgan, as covered by Kitco, reveals that the blockchain network has failed to meet these expectations. Key performance indicators such as daily transactions, active user addresses, and the total value locked in decentralized finance (DeFi) platforms have all apparently seen a downturn.

According to a report by Jordan Finneseth for Kitco News, which was published yesterday, J.P. Morgan’s team, led by Nikolaos Panigirtzoglou, noted that although the shift from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism has drastically reduced the network’s energy consumption, the anticipated boost in network activity has been underwhelming. The amount of Ether staked has increased by 50% since the Shanghai upgrade, but this has not translated into heightened network activity.

Kitco’s report also pointed out various factors that could be dampening Ethereum’s performance. These include the collapse of crypto platforms FTX and Terra/Luna, waning interest from institutional investors, regulatory uncertainties in the United States, and a decrease in venture capital funding.

As Kitco mentioned, the transition from PoW to PoS took place in September 2022, while the Shanghai upgrade was implemented in April of this year. Layer-two (L2) protocols like Polygon, Arbitrum, and Optimism have also shown inconsistent results, according to Kitco. Kitco says that while activity has increased on Optimism, Arbitrum has experienced a decline, and the total value locked on both L2 networks has decreased since the Shanghai upgrade.

Kitco News highlighted that one area that has seen growth is participation in staking, which has surged by 50%. However, this has raised concerns about centralization, particularly as protocols like Lido have come to dominate the liquid staking market.

Kitco also reported that despite the upgrades, Ethereum still faces challenges with scalability. The cost of transactions remains high, influenced by the network’s activity level. Data indicates that the average gas fee has reached as high as 155 gwei in the past year, translating to a cost of $7.44 per transaction at an Ether price of $1,600.

In a recent interview with CNBC’s MacKenzie Sigalos in Prague, Ethereum co-founder Vitalik Buterin stated that the transition of Ethereum to a proof-of-stake framework enhances its resistance to governmental interference, given its increased capacity for anonymity and difficulty to disable. He further noted that Ethereum has matured into an autonomous ecosystem robust enough to operate even in the absence of his involvement or that of the Ethereum Foundation. He underscored the presence of full-fledged companies managing Ethereum clients, fortifying the platform’s resilience by eliminating any singular vulnerability point.

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