Injecting 50,000 ETH, the Ethereum Foundation's first substantial participation in DeFi

Author: KarenZ, Foresight News

For a long time, the Ethereum Foundation has been mired in criticisms of "opacity," "ignoring community voices," and "burning money like water," with its leadership structure and personnel configuration being particularly controversial. Coupled with the behavior of frequently selling small amounts of ETH and its "inaction" in response to community needs, a series of FUD has continuously eroded market confidence in it. Recently, many Ethereum community users and developers have turned to Solana, putting the Ethereum ecosystem in an unprecedented predicament. Time seems to be running out for Ethereum.

However, under the reverse supervision and criticism from the community, the Ethereum Foundation and Vitalik Buterin seem to have finally realized the urgency for change. Recently, they announced two major decisions: first, to allocate 50,000 ETH (approximately $150 million) to participate in the Ethereum DeFi ecosystem, and second, to undergo significant changes to the leadership structure over the next year. This article will analyze the impact of the Ethereum Foundation's participation in DeFi from three aspects: background, significance, and future outlook.

Why did the Ethereum Foundation choose to substantively participate in DeFi?

The vortex of fund management

The fund management approach of the Ethereum Foundation has long been controversial. According to a report released in November 2024 (“Quick Read on the Ethereum Foundation Report: $970 Million Total Treasury, 99.45% of Crypto Holdings in ETH”), the total treasury of the foundation 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 have continued to grow, increasing from $48 million in 2021 to $134.9 million in 2023. With over 99.45% of the treasury's assets in ETH, the reduction in treasury funds, aside from the impacts of expenditures and asset price fluctuations, is primarily due to the Ethereum Foundation's small, high-frequency selling activities. Frequent small sales have further exacerbated market concerns.

There has been much questioning about why the foundation chose to sell rather than stake ETH (and use DeFi to cover the budget). Vitalik responded that there were past concerns about regulatory factors and hard fork stances, but the regulatory environment has improved, and they are actively exploring new fund management methods.

The controversy of "not truly participating in DeFi"

Another point of contention is the criticism that "the Ethereum Foundation does not use Ethereum for the sake of so-called neutrality."

In response, Ethereum Foundation employee Josh Stark stated, "The Ethereum Foundation has always been using Ethereum, such as converting ETH into stablecoins (usually through CoWSwap), paying fees to recipients and team members in stablecoins and ETH on the mainnet and L2, and supporting on-chain payments and using on-chain IDs to obtain tickets for Devcon and Devconnect events." However, Eric Conner even quipped that the foundation's primary use case for using Ethereum is actually selling.

Community dissatisfaction

The leadership structure of the Ethereum Foundation, its massive expenditures, and the communication gap with the community have led some users and developers to turn to competitors like Solana.

Although Vitalik stated that he would personally decide on the new leadership team and is undergoing reforms to establish an appropriate board, this has not quelled community dissatisfaction; rather, it has intensified the conflict. However, this also reflects Vitalik's current high regard for community feedback and the development of Ethereum.

Competitive pressure

In an interview with Wired magazine in 2023, Aya Miyaguchi, the executive director of the Ethereum Foundation, stated that the core of the Ethereum community is usually a group of researchers and developers purely pursuing their core vision, who are not particularly interested in making money. She believes that this vision and attitude resonate and drive the rapid development of the community. While there is nothing wrong with making money, she specifically pointed out that the narrative around blockchain is often simplified to money-making schemes, which undermines the potential of the technology. The Ethereum Foundation is committed to managing community values, resisting competitive sentiments with other chains, and refusing to be swept up by a culture of "competition and winning."

However, this insistence on a purely technical vision has also brought some side effects. Start-up DeFi projects on Ethereum are still in a state of wild growth. In contrast, the Solana Foundation and its official Twitter have far outperformed Ethereum in promoting and supporting start-up projects, providing developers with more resources and exposure opportunities. Coupled with Solana's high performance, low fees, and smooth experience, Ethereum faces severe competitive challenges. 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 EF allocating 50,000 ETH to participate in DeFi?

Supporting 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 completed test transactions on Aave.

This injection of funds will not only provide liquidity support for existing DeFi projects but will also incentivize the birth of more innovative projects, further consolidating Ethereum's leading position in the DeFi space.

Moreover, by participating in DeFi, the foundation can gain a more direct understanding of the ecosystem's needs and challenges, allowing for the formulation of more precise support strategies.

Exploring new fund management models

By participating in DeFi, the Ethereum Foundation is attempting a more open and sustainable fund management model, 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.

Enhancing community confidence

This move by the foundation is widely interpreted by the community as a positive signal, likely to reshape community trust. By regularly disclosing financial information, optimizing fund usage, and maintaining transparent communication with the community, the foundation is expected to regain support.

This increase in transparency and participation can not only enhance the community's sense of trust but also attract more developers and users to build in the Ethereum ecosystem long-term, promoting Ethereum's long-term prosperity.

Challenges and Risks

As Vitalik previously emphasized, the foundation will not lobby regulatory agencies or change its "trustworthy neutrality" stance, but balancing regulatory pressure with ecosystem participation in DeFi remains 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 cautiously addressed. In the short to medium term, the Ethereum Foundation will certainly prioritize relatively stable and low-risk opportunities to ensure fund safety and predictable returns.

Conclusion

The Ethereum Foundation's allocation of 50,000 ETH to participate in the DeFi ecosystem marks a significant adjustment in its fund management and strategic direction. This initiative not only injects new vitality into the Ethereum ecosystem but also provides new possibilities for the foundation's future development.

As Consensys founder Joseph Lubin stated, "The Ethereum Foundation, the Enterprise Ethereum Alliance (EEA), and Consensys are working on multiple initiatives that will reshape Ethereum's marketing approach in the short term. Soon, a series of high-value plans will be unveiled, which will be dazzling and even overwhelming."

The author believes that beyond DeFi, Ethereum should also align with industry trends and actively promote community development in potential areas such as AI agents and RWA. Additionally, the foundation needs to provide more support and guidance for start-up projects, and through resource integration and ecosystem collaboration, help these projects transition from wild growth to high-quality development. Only in this way can Ethereum maintain its leading position in fierce competition.