A recent update to Fusaka has led to an increase in activity on the Ethereum network; however, JPMorgan has raised doubts about the blockchain's long-term prospects. This was reported by The Block citing the bank's report.
Source: The Block.
"Historically, successive updates to Ethereum have not significantly increased activity on a sustainable basis for a number of reasons," the experts noted.
They believe the first factor is the ongoing shift of users from Ethereum's mainnet to layer two solutions. Citing data from CryptoRank, analysts pointed out that Base currently generates about 60-70% of the total fee revenue in L2.
Competition from alternative blockchains is another persistent issue. JPMorgan indicated that networks like Solana have captured a "significant" market share by offering faster and cheaper transactions, thereby attracting users and developers away from the second-largest cryptocurrency.
Analysts also noted a decline in speculative activity, which previously drove spikes in interest in Ethereum. During the bullish cycle of 2021-2022, demand related to initial coin offerings, NFTs, and meme coins contributed to increased transaction volumes. Many of these trends have since weakened or shifted to other protocols.
Moreover, capital that was once primarily invested in Ethereum is now more dispersed across specialized blockchains. Experts cited the migration of Uniswap to its own L2 and the transition of dYdX to an independent network as examples.
"Both companies have successfully attracted liquidity to their platforms, allowing them to generate revenue from their protocols," the analysts added.
The decline in activity on Ethereum is leading to a reduction in the amount of ETH burned from fees. This, in turn, contributes to an increase in the circulating supply of the coin, negatively impacting its price, JPMorgan explained.
It is worth noting that blockchain security specialist Andrey Sergeenkov linked the record increase in transactions on Ethereum to mass spam.