Ethereum’s Shanghai update has been ‘rather disappointing,’ with transactions falling since update, says JPMorgan

A team of analysts at the bank, led by managing director Nikolaos Panigirtzoglou, said in a note late last week that although Ethereum’s Shanghai upgrade in April made important changes to the network, the update has in other ways shown to be lackluster.

“The Ethereum supply is shrinking and staking rose sharply (with the amount of ether staked up by 50% since the Shanghai upgrade),” the note said, adding that “the increase in network activity has been rather disappointing.”

The Shanghai update enabled users to withdraw staked Ether that was put up following last year’s much-ballyhooed Merge, which reduced the blockchain’s energy footprint by 99% by transitioning the network to proof of stake from the more energy intensive proof of work.

Since the Shanghai upgrade, daily transactions on Ethereum have fallen by 12%, while the number of daily active addresses and the total value locked on the network have dropped 20% and 8%, respectively, according to JPMorgan.

“While staking has jumped by 50% since the Shanghai upgrade, which helps to improve network security, the share of liquid staking protocols such as Lido remains uncomfortably high, raising questions about centralization,” the analysts wrote.

The next major update to Ethereum is the planned EIP-4844 upgrade, also known as “Protodanksharding,” which is scheduled to be completed by the end of the year. It aims to allow Ethereum to process more data than it could previously.

The analysts wrote that they hoped this update would help turn the tide for activity on Ethereum, but “continued bearish crypto forces remain a headwind.”