Shanghai upgrade could boost investment in Ethereum protocol, says JPMorgan

JPMorgan, one of the world’s largest financial institutions, believes that the arrival of the next Ethereum upgrade, codenamed Shanghai, will lead to more investors putting their funds into the protocol. The firm estimates that this number could reach 60% of the issued ethers, a figure already put into play in other blockchain networks.

JPMorgan expects Ethereum Shanghai upgrade to bring more funds to the network

A recent report from JPMorgan revealed that the upcoming Shanghai upgrade, which is expected to be implemented in March, could bring more capital to the network. The investment bank estimates that Shanghai will bring the percentage of Ethereum’s stake to the number of other popular proof-of-stake networks, or more than four times the amount of ether currently in play.

The report explains:

Assuming that the staking rate converges over time to the 60% average of other major networks, the number of validators could increase from 0.5 million to 2.2 million and the annual ETH yield would increase from 7.4% today to about 5%.

14% of the ether’issue is currently staked, and cannot be withdrawn until the Shanghai update is finally implemented. Other protocols, such as Solana and Cardano, have about 70% of their emissions pledged, according to Staking rewards data.

New trends in staking

JPMorgan also provided details on where it believes these new funds will go to bet new investors. The firm believes that most of these funds will go to platforms such as Lido that have several advantages over maintaining hardware infrastructure.

The report states that these platforms “provide liquidity to staking assets that would otherwise be locked into staking contracts by providing an equal amount of derivative token in exchange for ETH that can be traded.“

As the report suggests, these derivative tokens can also be positioned in different decentralized financial platforms to compound earnings by staking them as well. Furthermore, they bypass the requirement to stake at least 32 ethers, allowing small investors to participate in protocol validation tasks in staking pools.

Exchanges like Coinbase and Kraken also offer staking services for Ethereum, but regulatory headwinds could thwart these services in the United States. Kraken recently shut down its staking programs in the U.S. and was fined $30 million by the SEC to settle charges of offering unregistered staking services. However, users in foreign countries will also be able to stake their ethereum tokens using these services.

This new configuration of the staking landscape could result in even greater concentration of funds in fewer hands, raising concerns about the resilience of these platforms to future attacks.