JPMorgan Raises Concerns about Ethereum’s Long-term Sustainability
JPMorgan has raised concerns about the sustainability of Ethereum’s long-term activity following the Fusaka update, which sparked a rise in network activity. According to experts, previous updates on the Ethereum blockchain have not been able to sustainably increase activity over time for various reasons.
One key factor is the ongoing shift of users from the Ethereum mainnet to Layer 2 solutions. Data from CryptoRank indicates that Base alone is responsible for a significant portion, around 60-70%, of the total fee revenue generated in L2. This migration has been a consistent trend affecting Ethereum’s network activity.
In addition to user migration, Ethereum faces tough competition from alternative blockchains like Solana. These networks have gained a substantial market share by providing faster and more affordable transactions, which has attracted users and developers away from Ethereum. This increased competition poses a significant challenge to Ethereum’s position as the second-largest cryptocurrency by market capitalization.
Furthermore, the decrease in speculative activities like initial coin offerings, NFTs, and meme coins has also impacted Ethereum’s transaction volumes. The surge of interest during the 2021-2022 bull cycle has since waned, with many of these trends either weakening or shifting to other blockchain protocols.
The dispersion of capital across various specialized blockchains has further diluted Ethereum’s market dominance. Platforms like Uniswap and dYdX have successfully transitioned to their own networks, attracting liquidity and revenue away from Ethereum. As a result, Ethereum’s declining activity has led to a reduction in ETH burned from fees, resulting in an increase in circulating supply and negatively impacting coin prices.
Blockchain security expert Andrey Sergeenkov previously attributed the record growth in Ethereum transactions to mass spam, underscoring the challenges facing the network. These issues point towards a potential struggle for Ethereum to maintain its activity levels and market position in the long run.
