In April, the Ethereum network underwent its latest update, Shanghai, which allowed withdrawals from staking protocols. However, the bank JP Morgan stated that the update did not bring the long-awaited increase in network movement.
According to a report released by the bank on Thursday (21), the update brought several significant impacts. However, the release of staking withdrawals ended up bringing the opposite movement.
The expectation (and, for many, the fear) of the Shanghai update was that users would make mass withdrawals of ETH from the protocols. But JP Morgan stated that this did not happen and, above all, the network ended up seeing its activity decrease drastically.
“The move from Proof of Work (PoW) to Proof of Stake (PoS) with The Merge has reduced the Ethereum network’s energy consumption by over 99%. But the supply of Ethereum in circulation is decreasing and staking has increased sharply. As a result, the increase in network activity was quite disappointing,” wrote analysts led by Nikolaos Panigirtzoglou.
The bank notes that Ethereum’s daily transaction count has dropped 12% since the Shanghai update and daily active addresses have dropped nearly 20%. Additionally, the total value locked (TVL) in Ethereum-based decentralized finance (DeFi) protocols fell by nearly 8%.
The drop in network activity suggests that last year’s “bearish forces,” which include the collapse of Terra and FTX, as well as the United States regulatory crackdown, likely outweighed the positive impact of the upgrade, according to analysts. .
The only positive factor was the 50% increase in the amount of Ethereum staked since the Shanghai update. After all, the more ETH staked, the greater the network’s security against attacks, as there is no longer mining. However, JP Morgan points out that the majority of staking is still on the Lido Finance protocol.
Since the implementation of staking with the Beacon network, Lido has been the subject of controversy due to its concentration. Users fear that the high amount of Ethereum in the protocol will result in a centralization of staking. And the American bank seems to agree with this.
“The share of liquid staking protocols like Lido remains uncomfortably high, raising questions about centralization,” JP Morgan added.
New update coming soon
The update took place in April this year and made it possible to withdraw ETH left in stake. After The Merge update, users had to leave their Ethereum locked for a while before being able to withdraw. But the prospect of earning rewards made most of them choose not to withdraw their ETH from the protocols.
There is more hope for a material increase in Ethereum network activity with the upcoming EIP-4844 or Protodanksharding update, the report added, but “continued bearish forces remain a headwind.” EIP-4844, which is expected to approve the new update, is planned for the fourth quarter of this year.