A recent recovery in decentralized finance and non-fungible tokens, though positive, is not yet strong or conclusive, according to JPMorgan.

"While we do not doubt this recent revival in DeFi/NFT activity is a positive sign, we believe it is too early to be getting excited about it," JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Thursday. These are "only tentative signs of revival," they said.

After a slowdown of almost two years, NFT sales volume and DeFi total value locked have increased in recent months. The recovery has created "some optimism that the worst might be behind us in terms of the medium-term trajectory for DeFi/NFT activity," but it's premature to start feeling optimistic about it, according to the analysts.

That's because some recovery in DeFi is "natural," given increased crypto trading activity, some of which is transmitted through decentralized exchanges. Liquid staking led by Lido has also been helping DeFi to improve since early 2023, much before the hype about spot bitcoin ETF approval emerged, the analysts said.

The price of ether, meanwhile, has underperformed other cryptocurrencies, which means that measuring total value locked in ether terms "would mechanically show some revival given the price of several smaller cryptocurrencies has risen by more than ether in recent months," according to the analysts.

Ethereum lags amid DeFi/NFT resurgence

Ethereum's well-known issues, including high fees and low transaction speeds, have hindered the blockchain's growth despite the recent DeFi/NFT revival, according to the JPMorgan analysts. "Ethereum does not appear to have benefitted much from the recent revival in DeFi/NFT activity," the analysts said.

The emergence of new blockchains, DeFi protocols and NFT platforms, such as Aptos, Sui, Sei, Celestia and Blur, is "encouraging," according to the analysts. They added that upcoming Ethereum upgrades could tackle the blockchain's scalability issues, possibly sustaining its dominance, but the timing and the effectiveness of these upgrades remain uncertain.

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