The Ethereum blockchain, home to Ether (ETH), the world’s second-largest cryptocurrency by market cap, has been grappling with intense competition from other networks, according to a recent research report from Wall Street bank JPMorgan. The report reveals that despite major upgrades, Ethereum has not been able to outshine its primary competition – Bitcoin, which benefits from its perception as a ‘store of value’ or ‘digital gold.’
Ethereum, according to the bank, has been underperforming, largely due to the lack of a compelling narrative like Bitcoin’s. Moreover, the recent shift of activity from the main Ethereum network to its layer 2’s, despite improvements such as Dencun, has been detrimental to the blockchain’s growth. The network’s latest upgrade, Pectra, is anticipated to occur in early April.
“Competitive pressures have led some decentralized applications (dapps) to migrate from Ethereum to other application-specific chains for enhanced performance,” stated the report, led by analyst Nikolaos Panigirtzoglou. The report cites examples of decentralized exchanges (DEXs) such as Uniswap, dYdX, and Hyperliquid that have migrated from Ethereum.
The anticipated move of Uniswap, one of Ethereum’s largest gas-consuming protocols, to Unichain is significant. JPMorgan suggests that the migration could lead to a sizeable loss to the Ethereum network’s fee pool, thereby affecting its economic model.
The report further predicts that the ongoing trend of dapps migrating to other layer 2s or alternative layer 1s could negatively impact Ethereum. This migration could lessen activity on the main network, possibly leading to lower transaction fees and validator revenue. This shift could also result in Ether becoming inflationary, as fewer transactions could mean reduced token burning.
Despite these challenges, JPMorgan acknowledges that Ethereum continues to dominate the stablecoin, decentralized finance (DeFi), and tokenization spaces. However, the report also highlighted Ethereum’s slower growth compared to competitors like Solana, which experienced a recent surge in activity linked to meme coins.
Looking forward, the bank predicts that Ethereum might see increased institutional demand, particularly from tokenization enterprises. However, it also warns that “competition from other networks is likely to remain intense in the foreseeable future,” suggesting that Ethereum’s path to regain its edge in the crypto space might not be an easy one.
