HomeCryptoEthereumJPMorgan on security classification: implications for Ethereum after Lido stock drop

JPMorgan on security classification: implications for Ethereum after Lido stock drop

According to JPMorgan experts, the decrease in Lido’s market share could prevent Ethereum from being considered a security.

Analysts also point out that the latest update of Ethereum to Dencun represents a further advantage for the blockchain network and its entire ecosystem. Let’s see all the details below. 

The Influence of Lido’s Actions on JPMorgan’s Judgments: Analysis of the Potential ‘Security’ Label on Ethereum

As anticipated, the recent decrease in Lido’s market share, the main liquid staking protocol for Ethereum, could play in favor of Ethereum in the future. 

In particular, avoiding classification as a title, according to analysts at JPMorgan.

In their report published on Wednesday, led by Nikolaos Panigirtzoglou, JPMorgan analysts observed that the share of Ethereum staked on Lido has decreased in the last year, dropping from about a third to about a quarter. 

This decrease in Lido’s share could reduce concerns about concentration in the Ethereum network. Increasing the chances that Ethereum may avoid being designated as a security in the future.

In the past, analysts at JPMorgan had expressed concerns about the potential centralization of protocols like Lido, despite their decentralized nature.

However, with the decrease in Lido’s market share, these concerns seem to have diminished.

Analysts have emphasized the importance of decentralization in determining the classification of a digital token as a security. 

Specifically highlighting the documents released by the Securities and Exchange Commission (SEC) of the United States, known as “Hinman documents”.

These documents, published last June, indicated that tokens operating on a “sufficiently decentralized” network may not meet the criteria to be considered securities.

JPMorgan analysts also noted that after the publication of Hinman’s documents last year, US legislators may have considered creating a new regulatory category to accommodate Ethereum. 

By doing so, avoiding its classification as a security and ensuring investor protection. However, the SEC chairman, Gary Gensler, has not commented on the potential exemption of Ethereum from securities regulations.

Key updates for transaction performance improvement

The recent transition of Ethereum to Dencun has significantly lowered transaction costs for Ethereum Layer 2 networks, increasing both the number of transactions and the total locked value.

According to JPMorgan experts, this development positions Ethereum as the “ultimate settlement layer for the Ethereum ecosystem”.

Analysts have observed that the implementation of Ethereum Layer 2 together with emerging Layer 3 solutions offers developers the opportunity to regulate transactions within the Ethereum ecosystem. 

Thus avoiding the need to switch to other alternative Layer 1 chains to distribute their applications.

Looking to the future, analysts indicate that the next important update of the Ethereum roadmap will be Petra, expected to be operational by the end of the year. 

The introduction of Petra, which includes Verkle trees to optimize space and speed up block verification by eliminating obsolete blocks, will offer additional benefits to Ethereum, according to analysts.

Scalability and growth of Ethereum Layer 2 networks

On April 3, investment manager VanEck predicted that the potential market capitalization of Ethereum’s Layer 2 scalability networks will reach $1 billion by 2030. 

Analysts Patrick Bush and Matthew Sigel have highlighted the key role of these networks in improving the scalability and efficiency of the Ethereum blockchain.

VanEck’s report predicts that Ethereum will hold over 60% of the market share of all public blockchains.

Analysts have highlighted that level 2 networks are ready to address Ethereum’s main challenge, namely its limited ability to process, store, and compute data, while tackling the domain of smart contracts. 

VanEck’s analysis covers various aspects of the Layer 2 ecosystem, including developer experience, user experience, trust assumptions, transaction fees, and ecosystem size. 

Technologies like Optimistic Roll-Up and Zero-Knowledge Roll-Up are focused on solving Ethereum’s scalability issues.

Furthermore, the report predicts a significant increase in Total Value Locked (TVL) in layer 2 blockchains, expecting them to dominate a significant portion of transaction value and TVL.

However, the report also highlights uncertainty about the long-term evaluation of Layer 2 tokens. 

Analysts hypothesize that the first seven L2 tokens based on Ethereum have a fully diluted valuation of 40 billion dollars, but they emphasize that the launch of more projects in the coming months could bring the overall valuation to 100 billion dollars.

Alessia Pannone
Alessia Pannone
Graduated in communication sciences, currently student of the master's degree course in publishing and writing. Writer of articles from an SEO perspective, with care for indexing in search engines.