Injecting 50,000 ETH, the Ethereum Foundation substantively participates in DeFi for the first time

By KarenZ, Foresight News

For a long time, the Ethereum Foundation has been mired in doubts about its "opacity", "ignorance of community voices", and "burning money like water". Its leadership structure and staffing have been controversial. Coupled with the high-frequency selling of ETH in small amounts and the "inaction" in the face of community needs, a series of FUD continues to erode the market's confidence in it. Recently, many Ethereum community users and developers have switched to Solana, and the Ethereum ecosystem is facing unprecedented difficulties. Time seems to be running out for Ethereum.

However, under the reverse urging and criticism of the community, the Ethereum Foundation and Vitalik Buterin seem to have finally realized the urgency of change. It has announced two major decisions in recent days: one is to allocate 50,000 ETH (approximately $150 million) to participate in the Ethereum DeFi ecosystem, and the other is to make major changes to the leadership structure for nearly a year. This article will provide an in-depth analysis of the impact of the Ethereum Foundation’s participation in DeFi from three aspects: background, significance, and future prospects.

Why did the Ethereum Foundation choose to substantially participate in

DeFi?

Money management vortex

The Ethereum Foundation’s approach to fund management has long been controversial. According to a report released in November 2024 (" Quick Reading Ethereum Foundation Report: Total Treasury Treasury of $970 million, 99.45% of crypto holdings are ETH "), the total treasury of the Foundation has increased from $1.6 billion on March 31, 2022 down to US$970 million on October 31, 2024, a reduction of nearly 40%.

Foundation spending continued to grow during this period, from $48 million in 2021 to $134.9 million in 2023. More than 99.45% of the assets in the vault are ETH. Therefore, in addition to the impact of expenditures and changes in asset prices, the reduction in vault funds is mainly due to the small-amount high-frequency selling activities of the Ethereum Foundation. Frequent small selling activities further exacerbated market concerns.

Questions arose about why the foundation chose to sell rather than pledge ETH (and use DeFi to make up the budget). Vitalik responded that in the past, he was worried about regulatory factors and hard fork positions, but now the regulatory environment has improved and is actively exploring A new way to manage money.

The controversy over “not really participating in DeFi”

Also controversial is the complaint that "the Ethereum Foundation does not use Ethereum for so-called neutrality."

In this regard, Josh Stark, an employee of the Ethereum Foundation, said, “The Ethereum Foundation has been using Ethereum, such as exchanging ETH for stablecoins (usually through CoWSwap), and giving stablecoins and ETH to recipients on the mainnet and L2. Developers and team members pay fees, and Devcon and Devconnect events support on-chain payments and use on-chain IDs to obtain tickets. However, Eric Conner even complained that the foundation’s number one use case for using Ethereum was selling.

community dissatisfaction

The Ethereum Foundation’s leadership structure, heavy spending, and communication gaps with the community have led some users and developers to turn to competitors such as Solana.

Although Vitalik said he would personally decide on the new leadership team and was making reforms to establish a suitable board of directors, this instead of quelling community dissatisfaction intensified the conflict. However, this also reflects from the side that Vitalik currently attaches great importance to community response and the development of Ethereum.

competitive pressure

In a 2023 interview with Ethereum Foundation Executive Director Aya Miyaguchi by Wired magazine, Aya Miyaguchi said that the core of the Ethereum community is usually a group of researchers and developers who purely pursue their own core vision. Not particularly interested in making money. She believes this vision and attitude resonated and fueled the community’s rapid growth. While there's nothing inherently wrong with making money, she specifically noted that the blockchain narrative is often reduced to a money-making scheme, to the detriment of the technology's potential. The Ethereum Foundation is committed to managing community values, resisting competitive sentiment with other chains, and refusing to be coerced by a culture of "compete and win."

However, this insistence on a purely technical vision also comes with 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 promote and support start-up projects far better than Ethereum, providing developers with more resources and exposure opportunities. Coupled with Solana's high performance, low fees, and smooth experience, Ethereum faces serious competitive challenges. The Ethereum Foundation's move to allocate 50,000 ETH to participate in the DeFi ecosystem may be a response to this challenge.

What is the significance of EF allocating 50,000 ETH to participate in

DeFi?

Support Ethereum DeFi ecological development

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.

The injection of this capital will not only provide liquidity support for existing DeFi projects, but will also stimulate the birth of more innovative projects and further consolidate Ethereum's leading position in the DeFi field.

In addition, by participating in DeFi, the foundation can more directly understand the needs and challenges of the ecosystem, thereby formulating more precise support strategies.

Explore new models of fund management

By participating in DeFi, the Ethereum Foundation is trying a more open and sustainable fund management model, instead of simply "selling, selling, selling." Staking rewards and DeFi earnings are expected to cover part of the foundation’s internal budget. This new attempt not only helps to alleviate market concerns about the foundation’s selling behavior, but also injects more vitality and confidence into the ecosystem.

Improve community confidence

The foundation’s move was widely interpreted as a positive signal by the community and is expected to restore community trust. By regularly disclosing financial information, optimizing how funds are spent, and communicating transparently with the community, the foundation can hope to regain support.

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

Challenges and Risks

As Vitalik has emphasized before, the foundation will not lobby regulators or change its "credible neutrality" stance, but how to balance regulatory pressure and ecological participation in DeFi is still a problem. In addition, the high volatility of the DeFi ecosystem may affect the foundation’s revenue expectations. Although staking rewards and DeFi income are expected to cover part of the foundation's budget, market fluctuations and protocol risks still need to be dealt with carefully. However, in the short to medium term, the Ethereum Foundation will definitely give priority to relatively stable and low-risk opportunities to ensure the safety of funds. and earnings predictability.

summary

The Ethereum Foundation allocated 50,000 ETH to participate in the DeFi ecosystem, marking a major adjustment in its fund management and strategic direction. This move not only injects new vitality into the Ethereum ecosystem, but also provides new possibilities for the future development of the foundation.

As Consensys founder Joseph Lubin said: "The Ethereum Foundation, the Enterprise Ethereum Alliance (EEA) and Consensys are working on a number of things that will reshape the way Ethereum is marketed in the short term. Soon, a series of High-value initiatives will be revealed to the public, and they will be dizzying and even dizzying.”

The author believes that in addition to DeFi, Ethereum should conform to the general trend of the industry and actively promote the development of the community in potential areas such as AI agents and RWA. In addition, foundations not only need to provide more support and guidance for start-up projects, but also help these projects transform from barbaric growth to high-quality development through resource integration and ecological collaboration. Only in this way can Ethereum stay ahead of the fierce competition.