Ethereum could lose out to rival blockchains that power crypto apps as its much-vaunted upgrade might come too late, JPMorgan says
Dado Ruvic/Reuters
Ethereum is at least a year away from getting its key blockchain upgrade out into the world, and that could give rival networks a chance to eat away at its lead in crypto apps, according to JPMorgan analysts.
The ethereum network dominates in usage for decentralized finance, or DeFi, which aims to cut traditional intermediaries like banks out of financial services.
The blockchain is undergoing a long-awaited change to how transactions are processed, and the upgrade has drawn investors to ethereum because they believe it could reduce congestion and costs.
Many crypto watchers believe ethereum's shift from «proof of work» to "proof of stake" in mid-2022 will encourage more investors to bet on the network and its native token ether, JPMorgan analysts said in a note Wednesday.
But another key stage in the etherum 2.0 upgrade, known as «sharding,» isn't expected to take place until 2023. That timeframe provides an opening for other crypto app networks, they pointed out.
«In our mind, this optimistic view about ethereum's dominance is at risk,» the analysts, led by Nikolaos Panigirtzoglou, said.
«This is because the scaling of the ethereum network, which is necessary for the ethereum network to maintain its dominance, might arrive too late.»
Over the past year, ethereum lost ground in DeFi market share at a rapid clip, the bank's team noted, though the pace has slowed in recent months. It has gone from close to 100% share at the start of 2021 to about 70% currently.
«The relative valuation of ethereum vs. its competitors has been echoing its declining DeFi share,» the note said.
A new crop of upstart blockchains — terra, Binance Smart Chain (BSC), avalanche, solana, fantom and tron, as well as ethereum layer 2
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