Ether (ETH) has underperformed different cryptocurrencies in current months because the Ethereum blockchain has confronted “intense” competitors from different networks, Wall Avenue financial institution JPMorgan (JPM) mentioned in a analysis report on Wednesday.
The token lacks a compelling narrative like that of its bigger peer bitcoin (BTC, the financial institution mentioned, including that bitcoin advantages from its notion as a retailer of worth and as digital gold.
Regardless of upgrades, akin to Dencun, exercise has shifted from the primary Ethereum community to its layer 2’s, which is detrimental to the blockchain’s development, the report mentioned. The community’s newest improve, Pectra, is prone to occur in early April.
“Aggressive pressures have led some decentralized purposes (dapps) emigrate from Ethereum to different application-specific chains for higher efficiency,” analysts led by Nikolaos Panigirtzoglou wrote.
Examples embrace decentralized exchanges (DEXs) akin to Uniswap, dYdX and Hyperliquid, the financial institution mentioned.
Uniswap’s upcoming transfer to Unichain is vital as a result of it’s one in all Ethereum’s “largest gasoline consuming protocols,” and its migration may end in a major loss to the community’s payment pool, the financial institution famous.
JPMorgan mentioned this development of dapps transferring to different layer 2s or various layer 1s may negatively influence Ethereum by lessening exercise on the primary community, which may end in decrease transaction charges and validator income.
Layers 2s are separate blockchains constructed on prime of layer 1s, or the bottom layer, that cut back bottlenecks with scaling and information. By way of provide, this might make ether inflationary as “fewer transactions indicate decreased token burning,” the authors wrote.
The financial institution famous that Ethereum’s development is behind that of opponents akin to Solana, which noticed a surge in exercise linked to memecoins.
The Ethereum ecosystem nonetheless dominates the stablecoin, decentralized finance (DeFi) and tokenization areas regardless of these challenges, the financial institution mentioned.
The community may see elevated institutional demand from tokenization enterprises however “competitors from different networks is prone to stay intense within the foreseeable future,” the report added.
Learn extra: Repair Ethereum’s Fragmentation Downside