JPMorgan analysts indicate that the diminishing market share of Lido, Ethereum's primary liquid staking protocol, suggests a reduced likelihood of Ethereum being classified as a security in the future.

In a report published on Wednesday, JPMorgan analysts, led by Nikolaos Panigirtzoglou, noted, "The share of Lido in staked ETH has declined further, from approximately one third a year ago to around a quarter presently." This decline, they suggest, alleviates concerns regarding concentration within the Ethereum network, thereby increasing the probability of Ethereum avoiding designation as a security.

Last October, JPMorgan analysts expressed reservations about platforms like Lido, despite their decentralized nature as liquid staking protocols, citing potential risks to Ethereum due to perceived centralization. However, with Lido's decreasing market share, these concerns appear to have been assuaged.

The analysts underscored the importance of network decentralization in determining a digital token's classification as a security, referencing the "Hinman documents" released by the U.S. Securities and Exchange Commission (SEC) in June last year. The SEC officials had indicated that tokens operating on a sufficiently decentralized network may not meet the criteria for classification as securities, primarily due to the absence of a controlling entity in the Howey sense.

Following the release of the Hinman documents, JPMorgan analysts had suggested the possibility of U.S. lawmakers establishing a new category to accommodate Ethereum, thereby sidestepping its classification as a security while ensuring investor protection. SEC chairman Gary Gensler has refrained from commenting on whether Ethereum is exempt from securities regulations.

Another favorable development for Ethereum is the recent Dencun upgrade, which has substantially reduced transaction costs for Ethereum Layer 2 networks, leading to increased transaction volume and total value locked. This enhancement positions Ethereum as the "ultimate settlement layer for the Ethereum ecosystem," as per the JPMorgan analysts.

"Through the utilization of Ethereum Layer 2 and emerging Layer 3 solutions, developers can now settle transactions within the Ethereum ecosystem without resorting to other alternative Layer 1 chains for deploying their applications," noted the analysts.

Following Dencun, the analysts highlighted the upcoming Pectra upgrade, scheduled to launch later this year. Pectra will introduce Verkle trees to optimize space and expedite block verification by clearing out obsolete blocks, further bolstering Ethereum's capabilities, according to the analysts.