Ethereum's latest upgrade has sparked an explosion of activity, but Wall Street bank JP Morgan (JPM) is skeptical it will last.
The bank said in a note to customers on Wednesday that the Fusaka upgrade in December increased data capacity and resulted in an immediate reduction in fees along with a surge in transactions and active addresses.
The report said Fusaka built on the Pectra upgrade in early 2025, which helped restore usage after the Dencun upgrade drove activity to its Layer 2 network. The consolidated upgrades have boosted network activity over the past year, but similar recoveries have tended to weaken in the past, the bank warned.
“Historically, successive upgrades of Ethereum have failed to meaningfully enhance network activity on a sustained basis,” the analysts, led by Nikolaos Panigirtzoglou, wrote.
Fusaka expanded the network's data capacity by increasing the number of “blobs” per block. This is a change aimed at reducing transaction costs and increasing throughput, especially in Layer 2 networks that rely on blockchain for data availability.
Fusaka eased congestion by allowing more data to be posted per block, lowered fees, and addressed bottlenecks that arose after previous upgrades moved activity off the main chain.
Layer 2 itself is increasing the pressure. Analysts noted the ongoing migration of activity to blockchains such as Base, Arbitrum, and Optimism, with Base currently generating the majority of Layer 2 revenue.
Analysts at the bank also warned of increased competition from faster, cheaper blockchains like Solana, and a decline in the speculative boom associated with non-fungible tokens (NFTs), meme coins and initial coin offerings (ICOs).
The Layer 1 network is the base layer, or the underlying infrastructure of the blockchain. Layer 2 refers to a set of off-chain systems, or separate blockchains built on top of Layer 1.
Analysts said capital is fragmented across application-specific chains, citing Uniswap and dYdX moves that divert liquidity and revenue away from Ethereum. As a result, fee burn fell and ether rose. Ethereum$2,966.59 Declining supply and total fixed value (TVL) Ethereum Clause.
While Fusaka saw a clear boost in the near-term, the bank remains in doubt as to whether Ethereum's recent surge in activity signals a permanent turnaround as structural headwinds persist.
The world's second-largest cryptocurrency was trading 2.2% higher at $2,992 at press time.
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