What happened?
The Ethereum Foundation has shifted from its previous neutral stance and now plans to more actively utilize its large Ether reserves in the decentralized finance (DeFi) ecosystem, such as through 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.
The Ethereum Foundation's actions are a direct response to community perceptions of its 'slowness' and the increasing pressure from competing blockchain platforms like Solana. To this end, the Foundation has undergone significant internal reforms, including hiring new co-directors Hsiao-Wei Wang and Tomasz Stanczak in March this year. The Foundation believes that the next 18 months will be a 'critical period' for Ethereum, thus necessitating a greater focus on important outcomes.
The Ethereum Foundation's new strategy is not only aimed at generating returns 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 even requires 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 Ethereum ecosystem.
Ethereum Foundation Adjusts Strategy
The Ethereum Foundation recently announced a new strategy aimed at more effectively utilizing its substantial Ether (ETH) reserves, focusing on supporting Ethereum's role as a leading platform for decentralized applications (dApps).
The Ethereum Foundation's new strategy emphasizes combining short-term operations with long-term goals, particularly during market downturns or 'critical' periods, where they will more actively intervene to support the Ethereum ecosystem. The Foundation believes that the next 18 months will be a crucial period that requires 'strengthening focus on key outcomes.'
To enhance transparency, the Ethereum Foundation has committed to regularly releasing 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 cryptocurrency assets and $181.5 million are non-cryptocurrency investments. Over 81% of its total holdings are in Ether.
Furthermore, the Ethereum Foundation plans to more thoughtfully utilize its reserve funds to ensure that 'short-term operations align with long-term strategies.' This means the Foundation will enhance its support for the Ethereum ecosystem during periods of poor market conditions or times deemed 'critical' by the Ethereum Foundation board.
Deepening DeFi participation and 'Defipunk' principles
The Ethereum Foundation will also more actively participate 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 locks 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, 'independent staking' means the Foundation will directly operate its own validation nodes.
In addition, the Ethereum Foundation has deposited its holdings of '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, thus increasing the yield on its assets.
The Foundation may even borrow stablecoins and earn higher on-chain yields through real-world asset (RWA) exposure and DeFi configurations.
In the past, the Ethereum Foundation avoided directly supporting any specific cryptocurrency protocols to maintain fairness. However, they have now changed their strategy to begin actively participating in and supporting certain DeFi protocols, aiming to practice their core values of promoting truly decentralized, censorship-resistant projects that allow users complete control over their assets.
To demonstrate its strategic shift, the Ethereum Foundation invested $120 million (45,000 ETH) into multiple DeFi protocols this past February. One example is their deposit of Ether into the well-known Aave lending protocol, while also borrowing $2 million in the decentralized GHO stablecoin from Aave. Additionally, DeFi protocols like Spark and Compound have also received funding support from the Foundation.
This shows that the Ethereum Foundation is actively becoming a participant and supporter in the DeFi ecosystem, rather than just an observer.
Internal adjustments and responses to community concerns
In recent months, the Ethereum Foundation has undergone a series of significant changes, mainly in response to community feedback regarding its 'slow' reactions and the growing pressure from competitors like Solana. In March, 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, setting the foundation for key deployments over the next 18 months. She emphasized that 2025-2026 could be a critical period for Ethereum, thus requiring more focus on important outcomes.
Although the Ethereum Foundation emphasizes its commitment to core cyberpunk values, some observers have noted a decrease in the emphasis on two key objectives, 'decentralization' and 'permissionless,' in some of Ethereum's recent public statements.
The Ethereum Foundation is undergoing an internal reform that requires its staff managing funds to deeply learn and utilize 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 entire Ethereum ecosystem, as well as to follow and realize these important decentralized values.
References: Cointelegraph, The Block
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