David Edwards
According to a new JPMorgan analysis, Ethereum is anticipated to continue to struggle with fierce competition from competing blockchain networks. Analysts lead by Nikolaos Panigirtzoglou pointed out on Wednesday that Ethereum’s native token, ether (ETH), has underperformed not only versus Bitcoin (BTC) but also other altcoins, despite a larger crypto market rally around the U.S. election.
The Falling Market Share of Ethereum
As a result of mounting pressure from competing blockchain systems, Ether’s market capitalization has dropped to a four-year low, according to the article. According to JPMorgan, Ethereum’s poor performance is mostly caused by two factors:
- increasing competition from networks that provide more scalability and lower prices, like Solana (SOL) and Layer 2 scaling solutions.
- Lack of a strong narrative, unlike Bitcoin, which is increasingly viewed as a store of value
The experts have observed that on-chain activity has shifted to Layer 2 networks, hurting the Ethereum mainnet, even after Ethereum’s Dencun update, which added blobs to lower costs and improve scalability.
Decentralized Applications Ignoring Ethereum
Major decentralized applications (dApps) have moved to application-specific chains in search of improved performance and cost efficiency as competition heats up. Notably, this paradigm has been adopted by Uniswap, dYdX, and Hyperliquid; Uniswap’s impending switch to Unichain is especially noteworthy.
JPMorgan analysts warned that since Uniswap is one of Ethereum’s biggest users of gas fees, its exit might diminish Ethereum’s transaction fee income and raise the risk of inflation because fewer transactions mean a lower ETH burn rate.
Ethereum’s Domination in DeFi and Tokenization
Ethereum is the industry leader in tokenization, decentralized finance (DeFi), and stablecoins in spite of these challenges. It is unclear, though, if it will be able to maintain its advantage in the face of growing competition.
According to reports, the Ethereum Foundation and Ethereum co-founder Vitalik Buterin have supported Etherealize, a firm run by former Wall Street trader Vivek Raman, in an effort to increase institutional adoption. By highlighting tokenization use cases and simplifying Ethereum-based banking solutions, the company hopes to advance Ethereum’s integration with financial institutions.
Although tokenization would increase institutional demand for Ethereum, analysts at JPMorgan came to the conclusion that competitor networks will probably continue to pose a serious threat for some time to come.
