Ethereum’s Shanghai upgrade, implemented in April, does not appear to have increased activity on the world’s largest smart contract blockchain as many had hoped for, JPMorgan (JPM) said in a research report Thursday.

“While the shift from proof-of-work (PoW) to proof-of-stake (PoS) that resulted from the Merge upgrade meant that the energy consumption for the Ethereum network collapsed by more than 99%, the ether supply is shrinking and staking rose sharply, the increase in network activity has been rather disappointing,” analysts led by Nikolaos Panigirtzoglou wrote.

The bank notes that Ethereum’s daily transactions count has fallen 12% since the Shanghai upgrade, daily active addresses have dropped nearly 20%, and the total value locked (TVL) in decentralized finance (DeFi) on the blockchain has slumped almost 8%.

The fall in network activity suggests that the “bearish forces” of the past year, which include the collapse of Terra and FTX, the U.S. regulatory crackdown, and a shrinking stablecoin universe, have potentially outweighed the positive impact from the Shanghai upgrade, the bank said.

While staking has jumped by 50% since the Shanghai upgrade, which helps to improve network security, the “share of liquid staking protocols such as Lido remains uncomfortably high, raising questions about centralization,” the bank added.

The Merge took place in September 2022 and involved transitioning from a more energy-intensive PoW to the PoS consensus mechanism. The Shanghai upgrade took place in April this year and enabled the withdrawal of staked ether (stETH). DeFi is an umbrella term used for lending, trading and other financial activities carried out on a blockchain. TVL is the total value of crypto assets deposited in a DeFi protocol.

There is more hope of a material increase in the Ethereum network activity with the upcoming EIP-4844 upgrade or Protodanksharding, the report added, but “continued bearish crypto forces remain a headwind.”

The Ethereum Improvement Proposal (EIP)-4844, or Protodanksharding, is planned for the fourth quarter of this year.

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