Recently, there has been a sharp decline in the number of daily active addresses on smart contract platforms (SCP), raising concerns among investors and developers.
Meanwhile, the Pectra update for Ethereum could be a turning point, as crypto analyst Jamie Kutts describes the current state as a cleansing of the ecosystem.
SCPs show a sharp decline in active users
Jamie Kutts, who created a crypto product for Bloomberg Intelligence, notes that this is the worst drop ever recorded in the history of SCP.
He also notes that this is much worse than the bear market of 2022-2023, as the number of daily active addresses has decreased by 40.5% in just five months.
"This is the largest collapse of usage in the history of SCP," wrote Kutts.
Kutts' analysis provides a deeper look into the broader crypto ecosystem, which simultaneously observes a rise in global liquidity and a historical peak in the market capitalization of stablecoins. While the sector seems to be experiencing turmoil, Kutts argues that this decline does not signify the death of smart contract platforms. On the contrary, it is a necessary cleansing of the ecosystem.
The analyst explains the decline in daily active addresses due to several key factors, including the rise of artificial activity.
"Much of the growth of the last cycle was artificial: Usage was inflated by bots and Sybil farms, and incentive programs created temporary traction without sustainability. The deployment reflects a cleansing of false activity, not the death of the sector," explains Kutts.
The rise of bots and Sybil attacks, where malicious actors create multiple fake identities to manipulate platform usage metrics, has artificially inflated activity metrics across various smart contract platforms.
Now that these fake users are being filtered out, the real growth potential of SCP becomes more apparent.
Additionally, this trend suggests that SCPs with weak application ecosystems or limited use cases will face significant valuation compression. This is especially relevant without the integration of stablecoins or real-world asset (RWA) applications.
Kutts notes that many SCP tokens risk valuation compression if their platforms do not offer high throughput, low costs, and real settlement capabilities.
The market is likely to reward mature platforms capable of sustaining real economic activity. This includes stablecoin transactions, payments, and applications utilizing AI.
"...in the future, value will concentrate on platforms that provide high throughput, low costs, real settlements, and agency automation," he added.
Ethereum staking rates rise after Pectra
It is important to note that these predictions align with the recent Pectra update for Ethereum, which became active on May 7, 2025.
The Pectra update introduces key features that may help Ethereum, the largest smart contract platform, stay ahead in this field. In particular, the update enhances Ethereum's staking model and validator operations.
CryptoQuant recently pointed to a notable spike in ETH staking around the news of the Pectra update. Specifically, before the Pectra update news, ETH staking experienced a net outflow of about 1.02 million ETH, reflecting uncertainty.
However, after the news, staking recovered with an inflow of 627,000 ETH, indicating a restoration of market confidence in the Ethereum staking ecosystem.
"Before the Pectra news (November 16 - February 15): ETH staking decreased from ≈34.88 million to 33.86 million ETH, with a net outflow of ~1.02 million ETH. This period reflects market uncertainty and a light deployment of staking positions before the update. After the Pectra news (February 16 - May 16): the total ETH staking amount increased from 33.78 million to 34.41 million ETH — with a net inflow of ~627 thousand ETH. This indicates a recovery of trust in the staking process after the update," wrote CryptoQuant analyst Crypto Mevsimi.
In the same vein, Bohdan Oprysko, co-founder and COO at Everstake, told BeInCrypto that the Pectra update could be the most institution-friendly update for Ethereum. He notes that this update is the clearest signal of Ethereum's readiness for conservative capital.
"For the first time, institutions can stake at scale with operational clarity and reduced complexity. This is a green light for conservative capital to join Ethereum's native staking," said Oprysko of BeInCrypto.
Moreover, the implementation of Pectra smart accounts enables Ethereum wallets to execute smart contract logic. This could stimulate the integration of stablecoins.
At the same time, this could enhance scalability. This would make Ethereum more suitable for handling real economic activities such as payments and financial transactions.
However, Kutts emphasized the divergence between price dynamics and network activity, which is a common phenomenon in the crypto industry. While markets stabilize, activity on many SCPs remains stagnant.
Kutts notes that this divergence will not last long. More sophisticated capital will increasingly be directed towards platforms that anchor real economic behavior, especially through flows of stablecoins and payments.
"Markets may stabilize, but activity will not," said Kutts. More sophisticated capital will increasingly gravitate towards chains that anchor real economic behavior, particularly through flows of stablecoins, payments, and AI-native applications.
Finally, Kutts predicts that the liquidity-driven rally will return, fueled by significant liquidity expected in the system in the coming months.
However, he warns that value is likely to accumulate in a subset of SCPs that can deliver tangible value through real applications and the integration of stablecoins. This sentiment aligns with the structural updates brought by the Pectra Ethereum fork.