JPMorgan Flags Risks Behind Ethereum's Latest Upgrade

Source: CoinTribune Original Title: JPMorgan Flags Risks Behind Ethereum’s Latest Upgrade Original Link: https://www.cointribune.com/en/jpmorgan-flags-risks-behind-ethereums-latest-upgrade/ Ethereum may chain updates, but doubt persists about its ability to generate sustainable activity. In a report published this Wednesday, JPMorgan analysts question the real effects of the Fusaka update, which nevertheless caused an immediate surge on the network. Behind the technical gains, the question of economic viability remains unanswered. The blockchain co-founded by Vitalik Buterin faces limits that even its latest advances do not seem able to correct.

In brief

• Ethereum experienced a resurgence of activity after the Fusaka update, thanks to an immediate drop in transaction fees.
• JPMorgan remains skeptical about the sustainability of this rise, noting that past upgrades did not have a lasting effect.
• Analysts point to the massive shift of activity towards Layer 2 solutions like Base, Arbitrum, or Optimism.
• The increased competition from blockchains like Solana further weakens Ethereum’s central position in the ecosystem.

A technical surge that struggles to convince

The Fusaka update, deployed on the Ethereum network on December 3, allowed increasing the maximum data capacity per block, from 15 to 21 blobs.

This evolution had an almost immediate effect on transaction fees, which saw a notable decrease. The direct consequence is a sharp rise in the number of active addresses and transaction volumes.

For observers, this sudden increase may have given the impression of a network revival. Yet, JPMorgan analysts quickly temper this enthusiasm. “It remains uncertain that this recent increase in network activity will be sustainable over time”, they write in their report led by Nikolaos Panigirtzoglou.

The positive response from blockchain metrics does not guarantee, in their view, a fundamental structural change. They recall that previous updates failed to create sustainable momentum. According to the report, several reasons explain this skepticism:

• Previous updates, though technically successful, did not lead to a lasting increase in network activity
• The positive effects of Fusaka on transaction fees are cyclical and might fade over time
• Analysts believe that “the reasons behind past limits are still present” despite the efforts made
• The temporary activity gain does not compensate for the underlying trend toward fragmentation of the Ethereum ecosystem

At this stage, JPMorgan warns against an overly optimistic interpretation of post-upgrade indicators. The relief in costs is not enough to reverse deep-rooted dynamics already well underway.

An economic dynamic weakened by exodus and competition

Although the activity rebound observed after Fusaka may have offered a respite, JPMorgan identifies underlying trends that weaken the network’s economic foundations.

First, the ongoing migration of users and applications to Layer 2 solutions such as Base, Arbitrum, and Optimism. The study cites data from CryptoRank showing that Base alone generates between 60% and 70% of total revenue from the L2 ecosystem. This proportion illustrates the gradual shift of Ethereum’s economy toward adjacent infrastructures, to the detriment of its own main chain.

Analysts also mention a redistribution of capital and liquidity to competing blockchains, faster and cheaper, such as Solana. This phenomenon is accompanied by a decline in speculative activities that had propelled Ethereum’s usage during the previous bull market: ICOs, NFTs, memecoins. All volume vectors that have now either migrated or exhausted themselves.

In this logic, flagship projects like certain DEX platforms and dYdX have respectively shifted to their own networks, attracting liquidity with them and thus reducing flows captured by Ethereum.

Despite doubts raised by JPMorgan, the post-Fusaka dynamic reveals genuine enthusiasm: new holders jump by 110%. The question remains whether this still fragile momentum will be enough to reverse underlying trends weakening the Ethereum ecosystem.