In a move that has sent shockwaves through the cryptocurrency community, activist short seller Culper Research has published a devastating report on Ethereum. The firm argues that the network’s highly anticipated Fusaka upgrade, executed in December 2025, has severely impaired ETH tokenomics, driving the world’s second-largest cryptocurrency into what they describe as a “death spiral.”
The Fusaka Fallout and Fee Collapse
The core of Culper’s thesis centers on the unintended consequences of the Fusaka upgrade. The update expanded the Layer 1 gas limit from 45 million to 60 million units, with the Ethereum Foundation estimating this would reduce transaction fees by a modest 10% to 30% while spurring greater activity. The reality, according to Culper’s data, has been far more severe.
| Metric | Ethereum Foundation Projection | Culper Research Findings |
|---|---|---|
| Gas Limit Increase | 45M to 60M units | 45M to 60M units |
| Fee Reduction | 10% – 30% decrease | ~90% collapse |
| Validator Revenue (Tips) | Stable with increased volume | 40% – 50% decline |
| Tokenomics Impact | Deflationary via EIP-1559 burn | Net inflationary due to lack of burn |
The resulting glut of blockspace has meant that legitimate transactions no longer need to competitively bid for inclusion. This 90% collapse in fees has gutted the EIP-1559 burn mechanism, transitioning ETH from a deflationary asset back to an inflationary one, while simultaneously crushing validator yields.
The Rise of Address Poisoning
Perhaps the most damning allegation in the report concerns the nature of recent network activity. While bulls have pointed to rising transaction counts and active addresses as evidence of network health, Culper’s on-chain analysis paints a darker picture.
The firm alleges that the excess blockspace has made spam transactions incredibly cheap, leading to a massive surge in “address poisoning” or “wallet dusting” attacks. These are scam tactics where attackers send negligible amounts of crypto to trick users into copying malicious wallet addresses.
According to the report, a staggering 95% of new wallet creation since the Fusaka upgrade is linked to these dusting attacks. Furthermore, Culper claims that this malicious activity explains more than 50% of recent ETH transaction growth, now constituting 22.5% of all transactions on the network.
The BitMine Connection and Vitalik’s Sales
The short report does not stop at Ethereum itself; it also targets BitMine (BMNR), one of the largest corporate holders of ETH. BitMine has accumulated roughly 4.4 million ETH as part of its treasury strategy. With the recent price action, DropsTab data estimates these holdings are 45% underwater, leaving BitMine sitting on approximately $7.4 billion in unrealized losses.
Culper contrasts the bullish stance of BitMine Chairman Tom Lee with the actions of Ethereum’s own creator. The report highlights that co-founder Vitalik Buterin has sold over 19,000 ETH (worth around $40 million) this year, ostensibly to fund a “period of mild austerity” for the Ethereum Foundation.
“Vitalik is selling, while bulls like Tom Lee are clueless as to ETH’s new reality. We’re with Vitalik.”
Culper Research Report
Community Backlash and the Institutional Debate
The report has triggered fierce pushback from the Ethereum community. Vitalik Buterin’s father publicly slammed the firm, defending the network’s long-term roadmap and dismissing the short seller’s claims as opportunistic FUD (Fear, Uncertainty, and Doubt).
Proponents argue that the reduction in Layer 1 fees was exactly what Ethereum needed to remain competitive against high-speed rivals like Solana. They maintain that lower fees democratize access to the network and that the current inflationary period is a temporary growing pain as Layer 2 solutions continue to scale.
Final Thoughts on Ethereum’s Trajectory
Culper Research’s short position introduces a highly critical narrative into the market just as Ethereum attempts to digest the realities of the Fusaka upgrade. The tension between expanding network capacity (which lowers fees) and maintaining attractive tokenomics (which requires fee burn) is the central conflict defining Ethereum’s current era.
Whether this is a temporary adjustment period or the beginning of the “death spiral” Culper predicts will depend entirely on whether genuine, value-driven utility can outpace the current flood of cheap spam.
