Ethereum’s “unique upgrade,” Pectra, will seriously improve the network, but will that up its price?

On May 7, the ethereum blockchain will undergo its next mainnet upgrade, “Pectra,” its largest protocol upgrade in terms of the number of Ethereum Improvement Proposals (EIPs). In a nutshell, the update aims to make the network more user-friendly, scalable, and efficient.

The code upgrade brings sweeping, broad-based changes that will affect validators, wallet providers, and users. Layer 2 networks — aka L2s, blockchains built on top of ethereum to help scalability, like Optimism or Arbitrum — also stand to benefit.

Pectra is different from previous upgrades because it contains 11 EIPs, the most in ethereum’s history of hard fork upgrades. “In terms of scope, this upgrade is not focused on a particular stakeholder group,” ethereum researcher Christine Kim told Sherwood News. “Pectra touches almost all layers of the ethereum protocol stack. It impacts so many different stakeholders, which is why it’s a little bit of a unique upgrade from prior ones.”

Nicolai Søndergaard, an analyst at blockchain data firm Nansen, said in a research note published on Sunday that Pectra “doesn’t revolutionize Ethereum… It focuses on solving known pain points in staking, rollup costs, and wallet complexity. And it does so with measured changes that are largely additive, not disruptive.”

Ethereum’s price has lagged

Despite the technical improvements from the upcoming mainnet deployment, ethereum is trading hands at the $1,800 level, an over 45% drawdown since the start of the year and a roughly 54% decrease since the network’s previous upgrade last year. 

As the second-largest network, with a market capitalization of $223 billion, ethereum pioneered smart contracts, but its year-to-date struggle has been larger than bitcoin’s. 

The price of bitcoin is around the $97,000 mark, exceeding its price point at the start of the year. The ratio between ETH and BTC is at a five-year low, while the SOL/ETH ratio is near its all-time high set in January, highlighting ethereum’s ongoing weak price performance relative to its peers.

Moreover, spot bitcoin ETFs trading in the US have seen a faster pace of adoption than spot ethereum ETFs. Since spot ethereum ETFs started trading last July, they’ve attracted almost $2.5 billion in cumulative net inflows. In contrast, spot bitcoin ETFs drew roughly $21 billion in their first nine months, data from crypto research platform SoSoValue shows. 

Julien Auchecorne, head of crypto trading firm Auros Ventures, argued that the underperformance of ethereum is hard to attribute to one reason as it’s caused by a mix of long-term structural challenges and short-term factors. 

One issue stems from the increased popularity of rival blockchains like Solana, which has put ethereum’s position in the market under scrutiny. Even though ethereum leads all major networks by total value locked and stablecoin supply, it’s lost its dominance in a number of categories, including daily transactions, active addresses, trading volume on decentralized exchanges, and fees generated, blockchain analytics firm Artemis found. 

Kira, an pseudonymous builder at social analytics platform Elfa.ai, cited the slow transaction speed and generally higher gas costs of ethereum’s parent chain as factors that turned users away from using the network. L2s aim to alleviate issues of transaction speed and gas costs, but they “bring their own problems of fragmented liquidity and the hassle of bridging through multiple chains,” Kira said. “All of these factors have contributed to ethereum falling behind its competitors.”

Søndergaard, who thinks Pectra is good for ethereum, will be looking to see whether ethereum’s tailwinds could be changing as well, but told Sherwood, “I am not sure if it will be enough to fully change the sentiment on ETH, since at this point, I think many investors gave up or don’t expect crazy movements.” 

Auchecorne added that ETH’s price recovery is possible within the year, even with its rough start. 

“Rock-bottom sentiment and elevated short positioning are creating asymmetric conditions for a potential turnaround story to take hold,” he said. “While we don’t expect immediate price impact, the upgrade introduces meaningful changes that strengthen ethereum’s foundation. If it lands alongside a broader sentiment shift, Pectra could prove to be a catalyst that we will look back on as a turning point, particularly if it rekindles conviction around ethereum’s long-term road map.” 

Changing validator operations

One of Pectra’s biggest changes is aimed at ethereum’s validators, which are run by people and institutions that help secure the blockchain via proof of stake. Right now, each validator can stake a maximum of 32 ETH, worth nearly $59,000. That limit is going up more than 60x to 2,048 ETH, or roughly $3.8 million.

“The main reason that code change is in Pectra is for security reasons,” Kim said. “It’s to make sure that the network doesn’t crumble under the weight of far too many active validators.”

Preston Van Loon, an ethereum core developer at Offchain Labs, says allowing a single validator to handle more ethereum and raising the validator cap serves two goals: streamlining the network and letting stakers compound their interest rewards. 

The estimated percentage yield for staking ethereum is about 2% annually, according to Coinbase’s website. With a validator cap of 32 ETH, or $59,000, that return amounts to less than $1,200. To earn more, users must create additional validators, a setup that doesn’t allow interest to compound and adds inefficiency to the network.

As a result, the dynamic has helped push the number of validators securing the ethereum network to over 1 million, with each holding on average the maximum amount of 32 ETH, data from blockchain explorer Beaconcha.in shows.

After Pectra, when validators can stake at most 2,048 ETH or $3.8 million, they can earn $75,000 at the same yield percentage. 

“There is an expected networking improvement, because one validator now has more weight than it did before,” Van Loon told Sherwood. “There’s a bandwidth and networking improvement that should make it easier to run.” Following Pectra, the number of ethereum validators should decrease, Kim added. 

While solo home stakers and large institutions that provide validating services both benefit from the raise, institutions are likely to profit more than small operators, Van Loon said. 

The ceiling increase makes life easier for institutions because they face lower costs in staking, explained Aly Saleh, vice president of engineering at distributed validator project Obol. 

“Pectra unlocks validator consolidation, which drastically reduces operational overhead — fewer machines, fewer keys, simpler monitoring,” Saleh said. “When combined with Obol DVs [distributed validators], institutions can consolidate hundreds of validators with no loss of decentralization or resilience, cutting infra and ops complexity and cost by up to 80%.”

Distributed validator technology enables more than a single party to operate an ethereum validator.

Wallet accounts getting smarter

Another highly anticipated element in the Pectra upgrade is EIP-7702, which focuses on a user’s experience in relation to their wallet. 

Prior to the upgrade, regular wallet accounts were limited in what they could do. Broadly speaking, accounts couldn’t follow preset rules, were not programmable, and could do things only that a user signed for, per Joseph Schiarizzi, ethereum developer and founder of stablecoin provider Nerite. 

Pectra, however, enables coding logic that follows certain instructions to self-execute within the wallet itself instead of the user having to perform each step manually. 

For example, ethereum accounts can conduct automatic monthly spending limits, batch multiple actions into a single step, or have sponsored transactions where gas fees are covered. Schiarizzi said this is “the biggest upgrade to user experience and to accounts in ethereum.” 

Kay Kyeongsik Woo, the founder of blockchain ride-hailing application Tada, anticipates Pectra’s wallet improvements will attract more ethereum usage. “Wallet use case will become easier, so we can expect more engagement from drivers and users,” he said.

Richard Meissner, cofounder of crypto wallet provider Safe, also says EIP-7702 will drive ethereum adoption. “This upgrade nudges the whole ecosystem forward. Within the next two years, I expect more users to onboard via smart accounts,” Meissner told Sherwood. 

For Auros Ventures’ Auchecorne, EIP-7702 not only elevates the design of user experience, but could also “help ethereum reassert itself at the center of innovation in an increasingly multichain world.” 

Sage D. Young is a crypto journalist who’s written for CoinDesk and Unchained.