Ethereum’s ambitious endeavors, the Merge and the Shanghai upgrade, designed to revolutionize ETH Tokenomics, have fallen short of their lofty expectations. In September 2022, Ethereum, the world’s second-largest blockchain, underwent a momentous transformation, transitioning from proof-of-work [PoW] to proof-of-stake [PoS]. This epoch-making move significantly slashed the network’s energy consumption by an astonishing 99%.
The subsequent Shanghai upgrade, introduced on April 12, 2023, facilitated the withdrawal of staked ether [stETH]. Shortly after its release, the blockchain experienced a surge, with 80% of inflows attributed to various institutional-grade ether staking service providers, marking a threefold increase. However, despite the commendable strides in energy efficiency, the overall activity on the network has left much to be desired, as observed by JPMorgan analysts under the leadership of Nikolaos Panigirtzoglou.
Drawing attention to Ethereum’s daily transaction count, JPMorgan’s report reveals a 12% decline since the implementation of the upgrade. Furthermore, daily active addresses have dwindled by nearly 20%, and the total value locked [TVL] in decentralized finance [DeFi] on the Ethereum blockchain has suffered a nearly 8% slump.
While the report attributes ETH’s performance to last year’s “bearish forces,” including notable setbacks like Terra and FTX, regulatory actions within the United States, and a contraction within the stablecoin ecosystem, it appears that these challenges have overshadowed the positive impact of the Shanghai upgrade.
Despite the 50% increase in staking following the hard fork, contributing to bolstered network security, concerns linger regarding the continued dominance of liquid staking protocols such as Lido, which raises doubts about centralization.
Ethereum Dencun Upgrade, The Road Forward
The report holds out hope for a potential uptick in Ethereum network activity with the impending EIP-4844 upgrade, colloquially known as “proto-danksharding.” This groundbreaking feature aims to scale the blockchain by creating additional space for “blobs.” However, it cautiously acknowledges that the persisting bearish trends in the cryptocurrency market could continue to pose challenges.
In a noteworthy development for the Ethereum network, developers have recently reached a consensus regarding the comprehensive scope of an upcoming upgrade dubbed “Dencun.” Expected to be introduced later this year, this hard fork will integrate five Ethereum Improvement Proposals [EIPs] designed to enhance data storage capabilities and reduce transaction fees, potentially ushering in a new era for Ethereum’s functionality and performance.