Ethereum’s Fusaka Upgrade Faces Sobering Reality: JPMorgan Predicts Short-Lived Activity Surge
NEW YORK, January 15, 2025 – JPMorgan’s latest cryptocurrency analysis delivers a sobering assessment of Ethereum’s recent Fusaka upgrade, suggesting the observed transaction volume increase may prove temporary despite initial positive metrics. The banking giant’s report highlights fundamental challenges facing Ethereum’s mainnet sustainability as Layer 2 solutions and competing blockchains reshape the ecosystem landscape.
Ethereum’s Fusaka Upgrade: Initial Metrics Versus Long-Term Reality
Ethereum completed its Fusaka upgrade implementation on January 8, 2025, marking another milestone in the network’s evolution. Immediately following the upgrade, on-chain data showed measurable improvements in transaction throughput and active address counts. Network analytics platforms recorded a 15-20% increase in daily transactions during the first week post-upgrade, while gas fees temporarily stabilized at lower levels.
However, JPMorgan’s blockchain research team emphasizes historical patterns from previous Ethereum upgrades. The bank’s analysis references the London upgrade (EIP-1559) in August 2021 and the Merge transition to proof-of-stake in September 2022. Both events generated initial activity spikes that gradually normalized within 4-8 weeks as network dynamics returned to baseline patterns.
The report specifically notes: “While Fusaka delivers technical improvements, structural ecosystem shifts create headwinds for sustained mainnet growth. Our data indicates existing Ethereum users increasingly migrate activities to Layer 2 networks, fundamentally altering the mainnet’s role in the ecosystem.”
The Layer 2 Migration Phenomenon
Layer 2 scaling solutions have transformed Ethereum’s operational landscape dramatically since 2023. Arbitrum, Optimism, Base, and Polygon zkEVM now process significantly more transactions than Ethereum’s mainnet. December 2024 data shows Layer 2 networks collectively handling 4.2 million daily transactions compared to Ethereum mainnet’s 1.1 million.
This migration carries profound implications for Ethereum’s economic model. When users transact on Layer 2 networks, they pay fees primarily to those networks rather than burning ETH through Ethereum’s base layer fee mechanism. Consequently, the deflationary pressure from fee burns diminishes proportionally with Layer 2 adoption.
| Metric | Pre-Fusaka (Dec 2024) | Post-Fusaka Week 1 | Change |
|---|---|---|---|
| Daily Transactions | 1.05M | 1.21M | +15.2% |
| Active Addresses | 412K | 478K | +16.0% |
| Average Gas Fee | 32 gwei | 28 gwei | -12.5% |
| ETH Burned Daily | 2,850 ETH | 3,150 ETH | +10.5% |
Competitive Pressure From Alternative Blockchains
JPMorgan’s analysis extends beyond Ethereum’s internal dynamics to examine external competitive forces. The report highlights Solana’s remarkable recovery and growth trajectory following its 2022 network instability issues. Solana’s daily transaction count now consistently exceeds 40 million, representing approximately 40 times Ethereum mainnet’s volume.
Several factors contribute to Solana’s competitive positioning:
- Lower transaction costs: Average Solana transactions cost $0.00025 compared to Ethereum’s $1.50+
- Higher throughput: Solana processes 3,000-5,000 transactions per second versus Ethereum’s 15-30
- Developer momentum: Solana’s developer ecosystem grew 83% year-over-year in 2024
Additionally, the cooling speculative fervor around NFTs and memecoins affects Ethereum disproportionately. During 2021-2022, NFT trading and memecoin speculation drove substantial Ethereum mainnet activity and fee generation. The 2024 market correction reduced these activities by approximately 70% from peak levels, according to DappRadar data.
Economic Implications for ETH Supply Dynamics
JPMorgan’s most consequential finding concerns Ethereum’s monetary policy and ETH supply trajectory. The Fusaka upgrade temporarily increased fee burn rates, but the bank projects this effect will diminish as activity normalizes. Reduced mainnet usage directly translates to lower ETH burn rates, potentially shifting Ethereum from a deflationary to a mildly inflationary asset.
The report models three scenarios for 2025 ETH supply:
- Bull case: Sustained high mainnet usage maintains 0.5% annual deflation
- Base case: Moderate Layer 2 migration leads to 0.8% annual inflation
- Bear case: Accelerated migration results in 1.5% annual inflation
These projections carry significant implications for Ethereum’s investment thesis, which has increasingly emphasized its “ultrasound money” characteristics post-Merge. If inflation returns, Ethereum competes differently within the broader cryptocurrency asset class.
Historical Context: Ethereum’s Upgrade Trajectory
Understanding Fusaka’s potential impact requires examining Ethereum’s upgrade history. The network has undergone six major upgrades since 2021, each addressing specific limitations:
Berlin (April 2021): Optimized gas costs for specific operations. Activity increased 12% temporarily before returning to baseline.
London (August 2021): Introduced EIP-1559 fee burning. Generated 45 days of elevated activity before normalization.
Arrow Glacier (December 2021): Difficulty bomb delay. Minimal activity impact.
The Merge (September 2022): Transition to proof-of-stake. Created 60 days of elevated activity and attention.
Shanghai (April 2023): Enabled staking withdrawals. Generated 30 days of increased staking activity.
Fusaka (January 2025): Proto-danksharding preparation and fee market improvements.
This pattern reveals a consistent theme: technical upgrades generate temporary interest spikes rather than permanent activity level shifts. Fundamental adoption drivers—applications, user experience, and economic incentives—prove more determinative of long-term network growth.
Expert Perspectives on Network Evolution
Blockchain analysts outside JPMorgan offer complementary insights. Galaxy Digital’s research team notes that Ethereum’s evolving role as a settlement layer rather than execution environment represents natural protocol maturation. Their January 2025 report states: “Ethereum increasingly serves as security and finality backbone for Layer 2 ecosystems. Judging its success solely by mainnet metrics misses this architectural evolution.”
Meanwhile, CoinShares’ investment strategists highlight Ethereum’s continued dominance in decentralized finance and institutional adoption. Despite competitive pressures, Ethereum maintains 55% market share in total value locked across all DeFi protocols and hosts 80% of major stablecoin transactions.
Conclusion
JPMorgan’s analysis of Ethereum’s Fusaka upgrade presents a nuanced perspective on network evolution. While the upgrade delivers measurable technical improvements, structural ecosystem shifts toward Layer 2 solutions and competitive pressure from alternative blockchains create significant headwinds for sustained mainnet activity growth. The Ethereum Fusaka upgrade’s initial metrics likely represent another temporary spike in Ethereum’s ongoing evolution rather than a fundamental shift in network dynamics. Investors and ecosystem participants should monitor Layer 2 migration rates and ETH supply changes as more accurate indicators of Ethereum’s long-term trajectory than short-term upgrade-related activity fluctuations.
FAQs
Q1: What exactly is Ethereum’s Fusaka upgrade?
The Fusaka upgrade, implemented January 8, 2025, introduces proto-danksharding preparation and fee market improvements to enhance Ethereum’s scalability and user experience. It represents another step in Ethereum’s multi-year roadmap toward full danksharding implementation.
Q2: Why does JPMorgan believe the Fusaka upgrade boost will be short-lived?
Historical data shows previous Ethereum upgrades generated temporary activity spikes that normalized within weeks. More importantly, structural shifts toward Layer 2 networks and competition from chains like Solana create sustained pressure on Ethereum mainnet activity regardless of technical improvements.
Q3: How does Layer 2 migration affect Ethereum’s economics?
When users transact on Layer 2 networks, they pay fees primarily to those networks rather than burning ETH through Ethereum’s base layer. This reduces the deflationary pressure from fee burns, potentially making ETH mildly inflationary if mainnet usage declines sufficiently.
Q4: What are the main competitors to Ethereum mentioned in the report?
JPMorgan specifically highlights Solana’s growth, noting its significantly higher transaction throughput and lower costs. The report also references broader competitive pressure from other Layer 1 blockchains and the cooling NFT/memecoin speculation that previously drove Ethereum activity.
Q5: Should Ethereum investors be concerned about this analysis?
The analysis suggests monitoring different metrics rather than immediate concern. Ethereum’s value proposition increasingly derives from its role as a secure settlement layer for Layer 2 ecosystems rather than direct mainnet usage. Investors should watch ETH supply changes and Layer 2 adoption rates as key indicators.
