Chain Reactions: How Markets Price Protocol Upgrade Announcements in Layer-1 Networks

Abstract

Protocol upgrades are the primary mechanism through which blockchain networks evolve. Yet how markets price these governance events, and whether those prices reflect a better functioning blockchain, has not been systematically tested. This thesis examines how Layer-1 cryptocurrency markets price protocol upgrade announcements and whether those prices are aligned with the fundamental improvements that follow implementation, using a sample of 23 upgrade events across eight major blockchain networks from 2020-2025. The results reveal a clear ordering of announcement returns across upgrade types. Of the three upgrade categories in this study, changes to consensus architecture produce the largest and most persistent market responses. Economic upgrades attract little measurable market reaction, while performance-based upgrades generate only a fleeting price response. Each category produces on-chain improvements consistent with its technical objectives; however, the degree to which those improvements are reflected in announcement-period abnormal returns differs. Fee reductions are captured most reliably, adoption and capital effects only partially, and processing efficiency gains are largely unaligned.