In a recent report, JPMorgan analysts, headed by Nikolaos Panigirtzoglou, have offered a tempered view on the nascent recovery observed in decentralized finance (DeFi) and non-fungible tokens (NFTs). While acknowledging the positive signs, they caution that it may be premature to draw any conclusive optimism from these developments.

According to an article by The Block, their report, which was released yesterday, notes a revival in NFT sales volume and an increase in the total value locked in DeFi after nearly two years of a downturn. This uptick has sparked some optimism regarding the medium-term prospects of these sectors. However, the analysts emphasize that these are merely initial signs of revival and should be approached with caution.

One reason for the recovery in DeFi, as highlighted by the report, is the natural increase due to the uptick in overall crypto trading activities, with a portion of this being channeled through decentralized exchanges. Additionally, the rise of liquid staking, particularly led by Lido since early 2023, has been a contributing factor, predating the excitement surrounding potential spot bitcoin ETF approvals.

The report also points out that Ethereum, despite its central role in DeFi and NFTs, has not significantly benefited from this revival. Ethereum continues to face challenges such as high fees and low transaction speeds. Its underperformance relative to other cryptocurrencies means that the total value locked, when measured in ether terms, shows a disproportionate revival due to the higher price increase of smaller cryptocurrencies.

Moreover, the analysts find the emergence of new blockchains and platforms like Aptos, Sui, Sei, Celestia, and Blur encouraging. They also note that upcoming Ethereum upgrades could address scalability issues and sustain its dominance in the market. However, they remain cautious, citing the uncertain timing and effectiveness of these upgrades. Thus, while acknowledging the positive developments, the JPMorgan analysts recommend a watchful approach towards the recent upswing in DeFi and NFT activities.