Ethereum identity crisis: Is Pectra the cure?

What happened

On 7 May 2025, Ethereum will activate a major network upgrade called Pectra. Originally planned earlier this year, the upgrade faced repeated delays but is now locked in.

Pectra introduces more Ethereum Improvement Proposals (EIPs) than any previous update. However, users and investors should not expect a complete overhaul to the protocol, like the shift in 2022 when Ethereum transitioned from proof-of-work to proof-of-stake. Pectra introduces a series of optimizations reflecting Ethereum’s ambition to stay ahead in a crowded Layer-1 race.

Impact on our Investment Case

What is this upgrade about?

The full list of EIPs is long and technical. However, a few changes deserve attention, as they will improve user experience, scalability, and staking.

Have you ever tried using an Ethereum wallet (e.g., MetaMask) to bridge tokens from the main network to a Layer-2 like Base or Polygon – or even more complexly, to another protocol like Solana? For most people, the previous sentence might as well be written in another language. We believe that one of the key reasons decentralized applications haven’t reached mass adoption is the ecosystem’s poor user experience. Even simple tasks (as in the example here, transferring assets) can feel overwhelmingly technical.

People need seamless experiences. Otherwise, they do not change their habits. We can draw a parallel to the success of the Bitcoin ETFs in the United States: Institutional investors needed a solution to access this asset class through their traditional counterparties, rather than facing operational risks and burdens with crypto exchanges. User experience rules, everywhere.

Thanks to EIP-7702, Ethereum introduces account abstraction, allowing regular wallets to behave like smart contracts. This enables features like gasless transactions, transaction batching, and better recovery mechanisms, bringing Ethereum closer to mainstream usability. In our opinion, this is the most essential part of this upgrade.

At the same time, Pectra increases data throughput for Layer-2 rollups by doubling the number of blobs per block (EIP-7691), which is key for reducing fees and improving transaction speed on Ethereum-based rollups. Blobs provide temporary storage for data.

Finally, Pectra lifts the maximum stake per validator from 32 to 2’048 ETH (EIP-7251), easing network load and enabling more efficient staking. Other changes streamline deposits and withdrawals (EIPs 6110 & 7002), making Ethereum’s consensus mechanism more robust and flexible​.

Why do we care about Ethereum development?

The Pectra upgrade matters not for its short-term effects, but for what it represents long term. As excitement over crypto markets has recently focused on speculative assets and memecoins, it’s easy to forget the foundational role of blockchain infrastructure, which provides a shared and immutable digital ledger. If blockchains want to handle “real-world” use cases at scale, developments like Pectra must continue.

Ethereum remains the leading platform for stablecoins, the future of digital payments. Around $125 bn of stablecoins (or 52% of all stablecoins) circulate on Ethereum. The sector, newly energized by political support in the U.S. Trump’s executive order in January promoting stablecoins over central bank digital currencies (CBDCs), has brought renewed attention to the protocols behind them. Regulations which will set clear standards for stablecoins should be enacted soon.

Even more critically, Ethereum is emerging as the go-to platform for tokenizing real-world assets. BlackRock Inc’s tokenized fund launches have taken place on Ethereum, underscoring its unique positioning in institutional adoption. But this transformation requires a network that is fast, user-friendly, and secure. Pectra is a step in that direction.

What will be the impact on Ethereum’s price?

We don’t expect Pectra to drive short-term price gains. Previous upgrades raised expectations but, despite being structurally important, disappointed investors.

Ethereum remains the second-largest cryptocurrency by market cap (~$220bn), but it has underperformed Bitcoin lately. This divergence is not surprising: Bitcoin benefits from its positioning as a monetary hedge, underpinned by its hard supply cap and increasing institutional adoption. Ethereum, by contrast, is designed as a programmable platform for decentralized applications—a role that entails continuous evolution and technical complexity.

In that context, Ethereum's recent price weakness should be seen less as a failure and more as a consequence of its transition toward a modular architecture. The community’s deliberate shift toward Layer-2 solutions—offloading execution to improve scalability—has temporarily reduced activity on the base layer. Meanwhile, competing Layer-1s like Solana have gained market share by offering simpler, cheaper, and faster alternatives.

While the Pectra upgrade should not bring back volume from Layer-2s to the base layer, it addresses some of the weaknesses that competitors have exploited. Regarding Layer-2s, Ethereum developers aim to truly consider them extensions of Ethereum rather than foreign chains in the future. As this vision takes shape, interoperability and user experience across the two layers are set to improve significantly.

Our Takeaway

Ethereum has been building since 2014, and the journey is far from over. The Pectra upgrade is not a flashy headline event; it’s a technical, necessary, and long-term move reinforcing Ethereum’s foundation.

Despite increasing pressure from competitors and internal governance criticism, Ethereum remains at the core of key blockchain use cases – from stablecoins to tokenized assets. If successful, Pectra will help Ethereum bridge the gap between crypto speculation and real-world financial infrastructure. This, in turn, should help restore clarity around the value of blockchain technology itself - benefiting the broader ecosystem, including the companies held in our Blockchain & Digital Assets strategy.