Crypto: JPMorgan questions effectiveness of Fusaka update on Ethereum

Ethereum may have a series of updates, but doubts persist 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 unresolved. The blockchain co-founded by Vitalik Buterin faces limits that even its latest advances do not seem to be able to correct.

A technical breakthrough that struggles to convince

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

This development had an almost immediate effect on transaction fees, which recorded a notable drop. The direct consequence is a skyrocketing number of active addresses and transaction volumes.

For observers, this sudden increase may have given the impression of a renewed vitality of the network. However, JPMorgan analysts are quickly tempering this enthusiasm. “It remains uncertain whether this recent increase in network activity will be sustainable over time”, write-they in their report led by Nikolaos Panigirtzoglou.

The positive reaction of blockchain metrics does not guarantee, according to them, a fundamental structural change. They point out that previous updates failed to create lasting momentum. According to the report, several reasons explain this skepticism:

• Previous updates, although technically successful, did not result in a lasting increase in network activity;
• The positive effects of Fusaka on transaction fees remain cyclical and could fade over time;
• Analysts estimate that “the reasons behind past limitations are still present” despite the efforts made;
• The temporary gain in activity does not compensate for the underlying trend towards fragmentation of the Ethereum ecosystem.

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

An economic dynamic weakened by exodus and competition

If the resurgence of activity observed after Fusaka may have offered a respite, JPMorgan identifies underlying trends which undermine the economic bases of the network.

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

Analysts also speak of a redistribution of capital and liquidity towards competing, faster and less expensive blockchains, such as Solana. This phenomenon is accompanied by a disaffection for the speculative activities which had propelled the use of Ethereum during the previous bull market: ICO, NFT, memecoins… So many volume vectors which have now migrated or have run out of steam.

In this logic, flagship projects like Uniswap and dYdX have respectively switched to their own networks, Unichain for one, an independent chain for the other, attracting liquidity with them and thus reducing the flows captured by Ethereum.

Despite the doubts raised by JPMorgan, the post-Fusaka dynamic reveals real enthusiasm: new holders jump 110%. It remains to be seen whether this momentum, which is still fragile, will be enough to reverse the underlying trends that are weakening the Ethereum ecosystem.