Author: KarenZ, Foresight News
For a long time, the Ethereum Foundation has been plagued by questions about "lack of transparency," "ignoring community voices," and "spending money like water." Its leadership structure and personnel configuration have also been highly controversial. In addition, the frequent small-scale selling of ETH and the "inaction" in the face of community demands have continuously eroded market confidence in it. Recently, many Ethereum community users and developers have turned to Solana, and the Ethereum ecosystem is facing unprecedented difficulties. The time left for Ethereum seems limited.
However, under the reverse supervision and criticism of the community, the Ethereum Foundation and Vitalik Buterin seem to have finally realized the urgency of reform. In the past few days, they have announced two major decisions: one is to allocate 50,000 ETH (about $150 million) to participate in the Ethereum DeFi ecosystem, and the other is to carry out a major overhaul of the leadership structure for nearly a year. This article will analyze the impact of the Ethereum Foundation's participation in DeFi from the perspectives of background, significance, and future outlook.
Why did the Ethereum Foundation choose to participate in DeFi in a substantive way?
Vortex of fund management
The Ethereum Foundation's fund management method has long been controversial. According to the report released in November 2024 (《Quick Reading of the Ethereum Foundation Report: $970 million in total treasury, 99.45% of crypto holdings are ETH》), the foundation's treasury has decreased from $1.6 billion on March 31, 2022 to $970 million on October 31, 2024, a reduction of nearly 40%.
During this period, the foundation's expenditures continued to grow, from $48 million in 2021 to $134.9 million in 2023. More than 99.45% of the assets in the treasury are ETH, so the reduction of the treasury is mainly due to the Ethereum Foundation's small-scale high-frequency selling activities, in addition to expenditures and asset price changes.
Frequent small-scale selling activities have further exacerbated market concerns. There have been many questions about why the foundation chooses to sell rather than stake ETH (and use DeFi to make up the budget). Vitalik responded that in the past, they were concerned about regulatory factors and hard fork stance issues, but the regulatory environment has improved, and they are actively exploring new ways of fund management.
Controversy over "not truly participating in DeFi"
Another controversial issue is the criticism that "the Ethereum Foundation does not use Ethereum for the sake of neutrality."
In this regard, Ethereum Foundation employee Josh Stark stated that "the Ethereum Foundation has been using Ethereum, such as converting ETH to stablecoins (usually through CoWSwap), paying fees to grantees and team members in stablecoins and ETH on the mainnet and L2, supporting on-chain payments and using on-chain IDs for ticketing at Devcon and Devconnect events." However, Eric Conner even mocked that the foundation's primary use case of Ethereum is selling.
Community dissatisfaction
The Ethereum Foundation's leadership structure, huge expenditures, and communication gaps with the community have led some users and developers to turn to competitors like Solana.
Although Vitalik stated that he will personally decide the new leadership team and is carrying out reforms to establish a proper board of directors, this not only failed to appease the community's dissatisfaction, but also exacerbated the contradictions. However, this also reflects Vitalik's high attention to the community's response and the development of Ethereum.
Competitive pressure
In an interview with Aya Miyaguchi, the executive director of the Ethereum Foundation, in Wired magazine in 2023, Aya Miyaguchi stated that the core of the Ethereum community is usually a group of researchers and developers who are purely pursuing their own core vision, and they are not particularly interested in making money. She believes that this vision and attitude have resonated and driven the rapid development of the community. Although making money is not inherently wrong, she specifically pointed out that the blockchain narrative is often simplified as a money-making scheme, which undermines the potential of the technology. The Ethereum Foundation is committed to managing the community's values, resisting the competitive emotions with other chains, and refusing to be swept up by the "competition and winning" culture.
However, this insistence on a pure technical vision has also brought some side effects. The startup DeFi projects on Ethereum are still in a state of savage growth. In contrast, the Solana Foundation and its official Twitter have a much stronger promotion and support for startup projects, providing developers with more resources and exposure opportunities. In addition, Solana's high performance, low fees, and smooth experience have posed a severe competitive challenge to Ethereum. The Ethereum Foundation's allocation of 50,000 ETH to participate in the DeFi ecosystem may be a response to this challenge.
What is the significance of the Ethereum Foundation's allocation of 50,000 ETH to participate in DeFi?
Support the development of the Ethereum DeFi ecosystem
The allocation of 50,000 ETH will provide strong support for the Ethereum DeFi ecosystem. The Ethereum Foundation plans to participate in the DeFi ecosystem through a 3/5 multi-signature wallet and has already completed test transactions on Aave.
The injection of these funds will not only provide liquidity support for existing DeFi projects, but also stimulate the birth of more innovative projects, further consolidating Ethereum's leading position in the DeFi field.
In addition, by participating in DeFi, the foundation can better understand the needs and challenges of the ecosystem, and formulate more precise support strategies.
Explore new models of fund management
The Ethereum Foundation is trying a more open and sustainable fund management model through participation in DeFi, rather than simply "selling, selling, selling." Staking rewards and DeFi yields are expected to cover a portion of the foundation's internal budget. This new attempt not only helps alleviate market concerns about the foundation's selling behavior, but also injects more vitality and confidence into the ecosystem.
Enhance community confidence
This move by the foundation is widely interpreted by the community as a positive signal, which is expected to rebuild community trust. By regularly disclosing financial information, optimizing the use of funds, and maintaining transparent communication with the community, the foundation is expected to regain support.
The improvement in transparency and participation can not only enhance the community's sense of trust, but also attract more developers and users to build long-term on the Ethereum ecosystem, promoting the long-term prosperity of Ethereum.
Challenges and Risks
As Vitalik previously emphasized, the foundation will not lobby regulators or change its "trusted neutral" stance, but how to balance regulatory pressure and ecosystem participation in DeFi is still a challenge. Additionally, the high volatility of the DeFi ecosystem may affect the foundation's revenue expectations. Although staking rewards and DeFi yields are expected to cover part of the foundation's budget, market volatility and protocol risks still need to be carefully addressed, but in the short to medium term, the Ethereum Foundation will definitely prioritize relatively stable and low-risk opportunities to ensure the safety of funds and the predictability of returns.
Summary
The Ethereum Foundation's allocation of 50,000 ETH to participate in the DeFi ecosystem marks a major adjustment in its fund management and strategic direction. This move not only injected new vitality into the Ethereum ecosystem, but also provided new possibilities for the foundation's future development.
As Consensys founder Joseph Lubin said: "The Ethereum Foundation, the Enterprise Ethereum Alliance (EEA), and Consensys are undertaking multiple initiatives that will reshape Ethereum's go-to-market approach in the near term. Soon, a series of high-value initiatives will be unveiled that will be dazzling and even dizzying."
The author believes that in addition to DeFi, Ethereum should also follow the industry trend and actively promote the community's development in potential areas such as AI agents and RWA. Furthermore, the foundation not only needs to provide more support and guidance for startup projects, but also help these projects transform from savage growth to high-quality development through resource integration and ecosystem collaboration. Only in this way can Ethereum maintain its leading position in the fierce competition.
