JPMorgan doubts the surge in Ethereum activity after the Fusaka upgrade

JPMorgan analysts question whether the recent surge in Ethereum network activity following the Fusaka upgrade can be sustained long-term, suggesting that the barriers that have hindered the network’s sustainable growth for years remain unresolved.

The Fusaka upgrade, implemented on 12/3, increased the maximum data capacity limit from 15 to 21 blobs per block, significantly reducing transaction fees in the short term. This fee reduction quickly boosted the number of active addresses and transaction volume.

However, according to a report released on Wednesday led by Nikolaos Panigirtzoglou – a senior JPMorgan executive – there is no clear basis to assert that this boom will be maintained over time. History shows that previous Ethereum upgrades rarely resulted in sustainable improvements in network usage.

Activity continues to shift from mainnet to Layer 2

The first reason emphasized by JPMorgan is the increasingly evident trend of users and transaction flows moving from the Ethereum mainnet to Layer 2 networks such as Base, Arbitrum, and Optimism. Citing data from CryptoRank, the analysis team states that Base now accounts for approximately 60%–70% of the total revenue of the entire Layer 2 ecosystem on Ethereum.

This indicates that economic value is becoming more concentrated in scaling layers, while the mainnet’s role in fee revenue is diminishing.

Competitive pressure from alternative blockchains

Additionally, Ethereum faces ongoing pressure from rival blockchains, especially Solana, which has attracted significant market share due to its high processing speed and low transaction costs. According to JPMorgan, performance and cost advantages have led many developers and users to shift to competing ecosystems, weakening Ethereum’s central position in on-chain activity.

Another important factor is the waning of speculative drivers that previously fueled Ethereum’s transaction volume during the 2021–2022 growth cycle. Back then, waves of ICOs, NFTs, and memecoins created high demand for block space and transaction fees. Currently, most of this speculative activity has either declined significantly or migrated to other blockchains, removing a key pillar of Ethereum’s network growth.

Capital disperses to specialized blockchains

JPMorgan also notes that capital previously concentrated mainly in Ethereum is increasingly dispersing into application-specific blockchains. Examples include Uniswap launching its own Layer 2 called Unichain, and dYdX operating on an independent blockchain.

According to analysts, both projects have successfully attracted liquidity to their own networks, thereby retaining protocol revenue rather than contributing to Ethereum mainnet.

Negative impact on fees and ETH token economics

The consequence of these trends is a decline in Ethereum’s fee-generating capacity. Lower activity on the mainnet reduces ETH burn, leading to an increase in circulating supply over time and downward pressure on price. JPMorgan also points out that the total value locked (TVL) measured in ETH decreased between the Pectra and Fusaka upgrades, which is seen as a negative signal.

In summary, JPMorgan concludes that although Fusaka has provided a strong boost to transaction volume and active addresses, sustaining this momentum is highly doubtful, as the core issues that have historically hindered Ethereum’s sustainable growth still persist.

Citi warns that the spike in activity may be driven by malicious behavior

Alongside JPMorgan’s view, Citi also warns that the recent record increase in transactions and active addresses on Ethereum may not reflect healthy network expansion.

According to reports by analysts Alex Saunders and Vinh Vo, most new transactions are valued under $1 – a characteristic often associated with “address poisoning” scams rather than genuine user growth.

In these schemes, attackers send tiny amounts from addresses that closely resemble the victim’s wallet to trick them into mistakenly transferring funds in subsequent transactions. The low transaction fees on Ethereum currently make it cheap and easy to generate large volumes of such activity, inflating surface-level metrics without reflecting real demand.

Some on-chain studies show that about 80% of the unusual increase in new addresses is related to stablecoins, with many smart contracts distributing tiny amounts of USDT and USDC to hundreds of thousands of different wallets.

ETH price performance continues to lag behind Bitcoin

Despite the on-chain activity surge, ETH’s price performance remains less positive compared to Bitcoin. During the same period, Bitcoin maintained a more stable trend, while ETH experienced high volatility and generally less attractive performance.

According to Citi, this divergence reinforces the view that Ethereum’s recent activity spike is idiosyncratic and likely driven by malicious behavior rather than a balanced market recovery.

Overall, both JPMorgan and Citi remain cautious about Ethereum’s growth prospects, suggesting that short-term improvements after the Fusaka upgrade are insufficient to overcome the structural challenges the network faces.