For a long time, the Ethereum Foundation has been plagued by criticism over its lack of transparency, disregard for community voices, and excessive spending. Its leadership structure and personnel decisions have also been highly controversial. Additionally, frequent small-scale ETH sell-offs and inaction in response to community demands have fueled ongoing FUD, gradually eroding market confidence. Recently, many Ethereum community members and developers have migrated to Solana, putting the Ethereum ecosystem in an unprecedented crisis. It seems that time is running out for Ethereum.

However, under growing pressure and criticism from the community, the Ethereum Foundation and Vitalik Buterin appear to have finally recognized the urgency of change. In response, they recently announced two major decisions: allocating 50,000 ETH (approximately $150 million) to participate in the Ethereum DeFi ecosystem and implementing a nearly year-long leadership restructuring. This article will analyze the impact of the Ethereum Foundation’s involvement in DeFi from three aspects: background, significance, and future outlook.

Why Did the Ethereum Foundation Choose to Substantially Participate in DeFi?

The Swirl of Fund Management

The Ethereum Foundation’s approach to fund management has long been controversial. According to a report published in November 2024 (“Ethereum Foundation Report Summary: $970M Treasury, 99.45% of Crypto Holdings in ETH”), the foundation’s treasury shrank from $1.6 billion on March 31, 2022, to $970 million on October 31, 2024—a nearly 40% reduction.

During this period, the foundation’s expenditures continued to rise, increasing from $48 million in 2021 to $134.9 million in 2023. With over 99.45% of its treasury assets held in ETH, the decline in funds was primarily driven by small, frequent ETH sell-offs in addition to spending and asset price fluctuations. These frequent small sell-offs further exacerbated market concerns.

Many have questioned why the foundation chose to sell ETH rather than stake it (and use DeFi to offset budget shortfalls). In response, Vitalik stated that regulatory concerns and hard fork stances were previously the main reasons, but with the improving regulatory environment, the foundation is now actively exploring new fund management strategies.

The Controversy of “Not Truly Participating in DeFi”

Another major criticism has been the accusation that “the Ethereum Foundation refuses to use Ethereum in the name of neutrality.”

In response, Ethereum Foundation employee Josh Stark stated, “The Ethereum Foundation has always been using Ethereum—exchanging ETH for stablecoins (often via CoWSwap), paying grantees and team members in stablecoins and ETH on both the mainnet and L2s, and supporting on-chain payments and ID-based ticketing for events like Devcon and Devconnect.” However, even Ethereum community member Eric Conner has criticized the foundation’s primary use of ETH as merely selling it.

Community Dissatisfaction

The Ethereum Foundation’s leadership structure, massive expenditures, and communication gap with the community have led some users and developers to shift toward competitors like Solana.

Although Vitalik has stated that he will personally oversee the selection of a new leadership team and is working on reforms to establish a proper board, this has not alleviated community dissatisfaction. Instead, it has intensified the controversy. At the same time, this also highlights how much Vitalik currently values community sentiment and Ethereum’s development.

Competitive Pressure

In a 2023 Wired magazine interview with Ethereum Foundation Executive Director Aya Miyaguchi, she mentioned that Ethereum’s core community largely consists of researchers and developers who pursue their vision with little interest in profit. She believes this vision and mindset have resonated with people and driven the rapid growth of the community. While there is nothing inherently wrong with making money, she emphasized that blockchain narratives are often reduced to profit-driven schemes, which undermine the technology’s potential. The Ethereum Foundation remains committed to upholding community values, resisting competition-driven narratives, and rejecting a culture centered on “winning.”

However, this unwavering focus on technical ideals has had unintended consequences. Many early-stage DeFi projects on Ethereum still operate in a chaotic, unstructured environment. By contrast, the Solana Foundation and its official channels provide significantly more support and promotion for emerging projects, offering developers greater resources and exposure. Combined with Solana’s high performance, low fees, and smooth user experience, Ethereum is facing an increasingly fierce competitive landscape. The Ethereum Foundation’s decision to allocate 50,000 ETH to DeFi may be a direct response to this challenge.

What Is the Significance of the Ethereum Foundation Allocating 50,000 ETH to Participate in DeFi?

Supporting the Growth of Ethereum’s DeFi Ecosystem

The allocation of 50,000 ETH will provide strong support for the Ethereum DeFi ecosystem. The Ethereum Foundation plans to participate in DeFi through a 3/5 multi-signature wallet and has already completed test transactions on Aave. This fund injection will not only provide liquidity to existing DeFi projects but will also encourage the creation of more innovative projects, further solidifying Ethereum’s leading position in the DeFi space. Additionally, by participating in DeFi, the Foundation will be able to directly understand the ecosystem’s needs and challenges, enabling it to develop more precise support strategies.

Exploring a New Model of Fund Management

By engaging in DeFi, the Ethereum Foundation is attempting a more open and sustainable model of fund management, moving away from the simple “sell, sell, sell” approach. Staking rewards and DeFi returns are expected to cover part of the Foundation’s internal budget. This new approach not only helps alleviate market concerns about the Foundation’s sell-off actions but also injects more vitality and confidence into the ecosystem.

Boosting Community Confidence

This move by the Foundation is widely interpreted by the community as a positive signal that could help rebuild trust. By regularly disclosing financial information, optimizing fund usage, and maintaining transparent communication with the community, the Foundation is likely to regain support. This increased transparency and participation will not only strengthen the community’s trust but also attract more developers and users to build within the Ethereum ecosystem, driving long-term prosperity for Ethereum.

Challenges and Risks

As Vitalik has previously emphasized, the Foundation will not lobby regulators or alter its “trusted neutrality” stance, but balancing regulatory pressure with ecosystem participation in DeFi remains a challenge. Furthermore, the high volatility of the DeFi ecosystem may impact the Foundation’s expected returns. While staking rewards and DeFi returns are expected to cover part of the Foundation’s budget, market fluctuations and protocol risks still need to be handled with caution. In the short to medium term, the Ethereum Foundation will likely prioritize relatively stable and low-risk opportunities to ensure both the security of funds and predictable returns.

Conclusion

The Ethereum Foundation’s allocation of 50,000 ETH to participate in the DeFi ecosystem marks a significant shift in its fund management and strategic direction. This move not only injects new vitality into the Ethereum ecosystem but also opens up new possibilities for the Foundation’s future development.

As Consensys founder Joseph Lubin stated, “The Ethereum Foundation, Enterprise Ethereum Alliance (EEA), and Consensys are working on several initiatives that will reshape Ethereum’s market promotion in the short term. Soon, a series of high-value plans will be unveiled, which will be dazzling and even overwhelming.”

In my opinion, beyond DeFi, Ethereum should also align with industry trends and actively promote the development of the community in potential areas such as AI agents and Real-World Assets (RWA). Additionally, the Foundation should provide more support and guidance to startups, and through resource integration and ecosystem collaboration, help these projects transition from chaotic growth to high-quality development. Only then can Ethereum maintain its leading position in the face of fierce competition.

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