What Happened?
The Ethereum Foundation has shifted from its previous neutral stance and now plans to more actively utilize its substantial reserves of Ether (ETH) to invest in the decentralized finance (DeFi) ecosystem, including independent staking and providing funds to lending protocols. In response to community concerns regarding its operations, the Ethereum Foundation has also committed to regularly publishing financial reports to enhance transparency in fund utilization.
This move by the Ethereum Foundation directly addresses community sentiments that it has been “slow” and the increasing pressure from competing blockchain platforms such as Solana. To this end, the Foundation has undergone significant internal reforms, including the hiring of two new co-directors, Hsiao-Wei Wang and Tomasz Stanczak, in March of this year. The Foundation believes that the next 18 months will be a “critical period” for Ethereum, necessitating a greater focus on key outcomes.
The new strategy of the Ethereum Foundation is not only aimed at generating profits but also at supporting DeFi protocols that align with its “Defipunk principles,” which emphasize decentralization, censorship resistance, and self-custody. To practice these ideals, the EF has even required its staff responsible for fund management to learn to use open-source and privacy-protecting tools, hoping to demonstrate and promote the development of these core values throughout the entire Ethereum ecosystem.
Adjustment of Strategy by the Ethereum Foundation
The Ethereum Foundation recently announced a new strategy aimed at more effectively utilizing its substantial reserves of Ether (ETH) and focusing on supporting Ethereum’s role as a leading platform for decentralized applications (dApps).
The new strategy emphasizes the integration of short-term operations with long-term goals, particularly during market downturns or “critical” periods, where there will be a more proactive intervention to support the Ethereum ecosystem. The Foundation believes that the next 18 months will be such a critical period, requiring “increased attention to key results.”
To enhance transparency, the Ethereum Foundation has committed to regularly publishing quarterly and annual financial reports detailing its asset holdings, investment performance, and any significant developments. As of October 31, 2024, the Ethereum Foundation holds approximately $970 million in total assets, of which $788.7 million are crypto assets and $181.5 million are non-crypto investments. Over 81% of its total holdings are in Ether.
Additionally, the Ethereum Foundation plans to utilize its reserves more thoughtfully to ensure that “short-term operations align with long-term strategies.” This means that the Foundation will intensify its support for the Ethereum ecosystem during periods of unfavorable market conditions or times deemed “critical” by the Ethereum Foundation’s board.
Deepening DeFi Participation and “Defipunk” Principles
The Ethereum Foundation will also take a more active role in the decentralized finance (DeFi) ecosystem and explore various funding strategies, including solo staking and providing wETH to yield-generating lending protocols.
In simple terms, the Foundation will lock its held Ether directly on the Ethereum blockchain to participate in the block validation process. Through staking, the Foundation can earn staking rewards, and unlike participating in liquid staking pools or other third-party staking services, “solo staking” means the Foundation will operate its own validator node directly.
Moreover, the Ethereum Foundation will deposit its held “wrapped Ether” (wETH) into DeFi lending platforms. This allows the Foundation’s wETH to be borrowed by other users, enabling the Foundation to earn interest income and thereby increasing the returns on its assets.
The Foundation may even borrow stablecoins and earn higher on-chain yields through exposure to real-world assets (RWA) and DeFi configurations.
In the past, the Ethereum Foundation avoided directly supporting any specific crypto protocols to maintain impartiality. However, they have now changed their strategy to actively participate in and support certain DeFi protocols, aiming to uphold their core values by promoting truly decentralized, censorship-resistant DeFi projects that allow users complete control over their assets.
To demonstrate this strategic shift, the Ethereum Foundation invested $120 million (45,000 ETH) into multiple DeFi protocols earlier this year. One example is their deposit of Ether into the renowned Aave lending protocol, while also borrowing $2 million in decentralized GHO stablecoins from Aave. Additionally, DeFi protocols such as Spark and Compound have received funding support from the Foundation.
This indicates that the Ethereum Foundation is actively becoming a participant and supporter in the DeFi ecosystem, rather than merely an observer.
Internal Adjustments and Response to Community Concerns
In recent months, the Ethereum Foundation has undergone a series of significant changes, primarily in response to community criticisms of its “slow” reactions and the increasing pressure from competitors like Solana. In March of this year, the Ethereum Foundation hired two new co-directors, researcher Hsiao-Wei Wang and Nethermind founder Tomasz Stanczak, to lead the reformed organization.
Hsiao-Wei Wang pointed out that the Ethereum Foundation currently has only 2.5 years of cash reserves, which sets the foundation for critical deployments over the next 18 months. She emphasized that 2025-2026 could be a pivotal period for Ethereum, necessitating a greater focus on key results.
Although the Ethereum Foundation emphasizes its commitment to core cyberpunk values, some observers have noted a reduction in references to two key goals—”decentralization” and “permissionless”—in recent public statements from Ethereum.
The Ethereum Foundation is undergoing an internal reform that requires its staff managing funds to thoroughly learn and use blockchain tools that align with its core principles (such as open-source and privacy protection).
The Foundation believes that by practicing these “Defipunk principles” (decentralization, censorship resistance, self-custody, privacy, etc.) in their daily operations, they can not only steadfastly move towards their established goals but also accumulate experience and capabilities to better guide and support other projects within the Ethereum ecosystem to follow and realize these important decentralized values.
References: cointelegraph, the block