Ethereum at a Crossroads: Can Pectra Save It?

So, what’s going on with Ethereum?

The world’s leading smart contract platform is going through one of its most critical phases yet. Not only is it about to go through a major upgrade (Pectra), but it is seemingly going through leadership upheavals behind the scenes.

Yet, it seems like nothing is happening price action wise?

This is not just saying this btw. Many believe that Ethereum had seemingly “missed the boat” on the bullish surge that has happened post Trump’s election.

In today’s newsletter, let’s break all that’s happening behind the scenes.

The Pectra Upgrade: Ethereum’s Most Ambitious Update Yet

Pectra is set to be one of the biggest updates in its history. It combines two previously separate upgrades—Prague (execution layer improvements) and Electra (consensus layer changes) into one.

Key Features of the Pectra Upgrade

1. Account Abstraction and Wallet Upgrades

EIP-7702: Set EOA Account Code

One of the most anticipated EIPs in Pectra, EIP-7702, introduces account abstraction, allowing externally owned accounts (EOAs) to execute smart contract-like functionality for a transaction. This means:

• Users can temporarily convert wallets into smart contracts for a single transaction.

• Gas sponsorship becomes possible, allowing third parties (protocols, applications) to cover gas fees for users.

• Transactions become more flexible and efficient, eliminating unnecessary steps in transaction approval flows.

EIP-7623: Increase Calldata Cost

This proposal increases the cost of calldata storage, discouraging inefficient use of transaction data and ensuring L2 rollups rely more on blobs instead of calldata, improving Ethereum’s efficiency.

2. Validator and Staking Improvements

EIP-7251: Increased Validator Staking Limits

• The maximum effective balance per validator increases from 32 ETH to 2,048 ETH.

• Allows staking rewards to compound within a single validator, reducing the need for multiple validator nodes.

• Reduces network congestion by consolidating smaller validators into fewer, more efficient ones.

EIP-7002: Execution Layer Triggerable Exits

• Enables trustless validator withdrawals directly from the execution layer, removing reliance on intermediaries.

• Makes staking pools and delegation more efficient by allowing withdrawal keys to trigger exits.

EIP-6110: Supply Validator Deposits On-Chain

• Removes the 2048-block delay for validator deposits, allowing new validators to be activated faster.

• Syncs deposits between the execution and consensus layers more efficiently.

3. Scalability and Data Storage Upgrades

EIP-7691: Blob Throughput Increase

• Doubles Ethereum’s blob capacity from 3 to 6 blobs per block (with a maximum of 9 blobs), reducing congestion for Layer-2s.

• Lowers fees for rollups, ensuring Ethereum remains competitive against alternatives like Solana.

EIP-7685: General Purpose Execution Layer Requests

• Introduces a new communication channel between Ethereum’s execution and consensus layers, reducing the need for off-chain oracles.

• Makes cross-layer operations more efficient and decentralized.

EIP-2935: Historical Block Hash Storage

• Stores the last 8,192 block hashes on-chain, aiding Ethereum’s long-term transition toward stateless clients.

• Reduces reliance on third-party block explorers for historical data.

EIP-2537: BLS12-381 Precompile for Cryptographic Operations

• Makes zero-knowledge proofs (zk-proofs) more efficient, benefiting privacy-enhancing applications.

• Reduces costs for cryptographic operations, helping zk-rollups scale

4. Network Optimizations and Security Improvements

EIP-7549: Optimize Validator Committee Indexing

• Reduces the computational burden for consensus verification by allowing validators to combine signatures more efficiently.

• Lowers gas costs for validating network consensus.

EIP-7840: Standardizing Blob Schedule in EL Config Files

• Establishes a structured approach to managing blob updates, making future upgrades smoother.

Why Pectra Matters

Ethereum’s biggest problem in recent years has been high transaction fees and congestion. While Layer 2 solutions like Arbitrum and Optimism have helped, the core network still needs upgrades. Pectra directly addresses these issues by making Ethereum more scalable and efficient.

SEC Drops Ethereum Investigation: A Big Win?

In a major victory for Ethereum, the SEC has officially closed its investigation into Ethereum 2.0 and will not pursue any enforcement action.

What Happened?

• The SEC had been investigating whether ETH should be classified as a security and whether Ethereum’s staking mechanisms violated securities laws.

• In April 2024, Consensys sued the SEC, arguing that the SEC had no jurisdiction over Ethereum.

• The lawsuit forced the SEC to clarify its stance, and by June 2024, the SEC informed Consensys that the investigation was closed.

Why This Matters

• Confirms that Ethereum is NOT considered a security, removing a major legal risk.

• Paves the way for spot ETH ETFs in the US, which are expected to launch within the next three months.

• Strengthens Ethereum’s legal position against future regulatory attacks.

Leadership Turmoil in the Ethereum Foundation

Even as Ethereum prepares for the Pectra upgrade and regulatory clarity, the Ethereum Foundation is facing internal conflicts and transparency issues.

Key Issues at the Ethereum Foundation

1️⃣ Conflict of Interest Scandals:

• Two key Ethereum researchers—Justin Drake and Dankrad Feist—took highly lucrative advisory roles at EigenLayer.

• The Ethereum community saw this as a conflict of interest, questioning whether EF contributors were pushing projects for personal financial gain.

• The backlash forced Drake to resign from EigenLayer, and EF introduced a new conflict of interest policy.

2️⃣ Ethereum Foundation’s $165M DeFi Investment:

• EF recently deployed 50,000 ETH ($165M) into DeFi protocols like Aave and Lido to generate passive income.

• This marks a major shift in EF’s approach, as it previously avoided staking its ETH for neutrality reasons.

• Some see this as a smart financial move, while others believe it’s a sign of desperation due to Ethereum’s declining dominance.

3️⃣ Gas Limit Debate:

• Ethereum validators are currently voting on whether to increase the gas limit to allow more transactions per block.

• While this could help lower transaction fees, critics argue that it might centralize the network further by making it harder for smaller validators to participate.

The Ethereum community has always prided itself on credible neutrality and decentralization, but recent events have raised concerns about whether EF leadership is prioritizing its own financial interests over the network’s long-term health.

Closing Observations

While Ethereum has managed to grab all the headlines these past few days, the fact remains that the price action hasn’t really been that impressive when compared to the rest of the market.

Consider this, between December 1, 2024 to January 31, 2025, Bitcoin went from $97,000 to $105,680, Solana went from $205 to $210. Meanwhile Ethereum went from $3,711 to $3,400!

Some analysts believe uncertainty around staking regulations and a general lack of institutional demand are still weighing on Ethereum’s price.

All things considered - Ethereum is at a critical crossroads. It still has the largest smart contract ecosystem, but its dominance is being challenged like never before. 

For now, Ethereum remains the leading smart contract platform, but the next 12 months will be crucial in determining whether it stays ahead—or if a new contender will take its place.

While Ethereum is struggling, there are plenty of other coins providing extreme growth opportunities. However, the goal here is to identify these coins early. To do this, the Coiners have created an exclusive TG group. Get real-time alpha calls and trade signals on hidden gems.