Ethereum Has Become ‘More Centralized’ with Merge and Shanghai Update: JPMorgan Report

In its recent research report, JPMorgan noted that the increase in Ethereum staking activities has accelerated the network’s trend towards centralization. According to analysts, this increase gained even more momentum, especially after the Merge and Shanghai upgrades.

The American investment bank JPMorgan stated in its recent research report that Ethereum’s trend towards centralization has accelerated in direct proportion to the recent increase in staking activities on Ethereum. Ethereum underwent a series of changes, particularly with the Merge and Shanghai upgrades, but these changes are not viewed entirely positively by analysts.

Increase in Staking Diminished Ethereum’s Appeal

The Merge upgrade in September 2022 facilitated Ethereum’s transition from a proof-of-work to a proof-of-stake blockchain. This was a significant move allowing users to stake on Ethereum. However, the Shanghai upgrade carried out in April of this year made it possible for validators to withdraw staked Ethereum and reinvest it. These changes led to a significant increase in staking activities on Ethereum.

“The rise in Ethereum staking since the Merge and Shanghai upgrades has come at a cost as the Ethereum network became more centralized and as the overall staking yield declined” 

JPMorgan analysts indicate that, as a result of this increase, Ethereum now possesses a more centralized structure. The study also highlighted that particularly the surge in staking may have diminished Ethereum’s yield appeal. The analyst team led by Nikolaos Panigirtzoglou pointed out that Lido ($LDO) has gained popularity in the crypto community as a decentralized liquid staking platform. However, the fact that this platform controls a significant portion of Ethereum staking activities may further intensify the network’s centralization trend.

“The total staking yield has decreased from the 7.3% level before the Shanghai upgrade to approximately 5.5% now.”

JPMorgan, in its statement last month, mentioned that Ethereum had fallen short of expectations in terms of network activity following the Shanghai upgrade. Ethereum experienced declines in daily transaction count, daily active addresses, and the total locked value (TVL) in decentralized finance protocols.

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