The Ethereum Foundation, a key non-profit stewarding development for the second-largest blockchain network, has disclosed a sharp 39% decline in its treasury over the past two and a half years. As of October 31, 2024, the foundation reported $970.2 million in its treasury, down from $1.6 billion on March 31, 2022. The newly released financial report offers insights into the reasons behind the drop, while also responding to growing demands from the Ethereum community for greater financial transparency.
A Deep Dive Into the Treasury Decline
The Ethereum Foundation’s treasury decrease is significant, especially considering the foundation’s central role in funding Ethereum’s ongoing development. The report reveals that the drop was driven by two main factors: a 22% decline in the price of ether (ETH) and the foundation’s substantial annual expenditures. Ether, the native cryptocurrency of the Ethereum blockchain, makes up the majority of the foundation’s holdings. Since March 2022, ether’s price has fallen from around $3,300 to approximately $2,600, exacerbating the financial impact on the foundation’s reserves.
Furthermore, the Ethereum Foundation has spent around $240 million over the last two years to support various projects and initiatives. These expenses have gone toward research, core protocol development, community grants, and other essential programs designed to strengthen the Ethereum ecosystem. However, these expenditures, combined with the declining value of ether, have fueled community concerns about the foundation’s financial sustainability.
Breakdown of Financials: Crypto-Dominated Holdings
The latest financial report provides a detailed breakdown of the foundation’s $970.2 million treasury. A staggering $788.7 million (81.3%) of this total is held in cryptocurrency assets, with nearly all of that amount (99.45%) in ether. This heavy reliance on ETH underscores the foundation’s faith in the long-term success of the Ethereum network but also exposes it to significant risk from market volatility. The remaining $181.5 million is diversified across non-crypto investments, serving as a crucial buffer to stabilize the foundation’s finances during turbulent times.
The foundation’s approach of holding the majority of its assets in ether is strategic. “We choose to hold the majority of our treasury in ETH. The EF believes in Ethereum’s potential, and our ETH holdings represent that long-term perspective,” the report states. However, critics argue that this strategy could be too risky. Given ether’s volatility, a prolonged downturn could seriously impact the foundation’s ability to continue funding crucial projects.
Significant Spending Patterns: Where the Money Went
The report also sheds light on the foundation’s spending patterns. In 2022, the Ethereum Foundation spent $105.4 million, followed by $134.9 million in 2023, totaling $240 million over the two years. These funds were directed toward essential activities that included core protocol research, ecosystem support, and community-driven initiatives. The spending has been instrumental in the continued growth and enhancement of Ethereum, especially with major projects like the Ethereum 2.0 upgrade.
However, some community members have raised concerns over the foundation’s annual burn rate of $100 million, suggesting that it may not be sustainable in the long run. According to Ethereum researcher Justin Drake, the foundation’s current financial strategy allows for a 10-year runway, assuming ether’s price remains stable. Yet, the prospect of a prolonged bearish market remains a concern. Drake reassured the community in a Reddit AMA, explaining that the foundation has a “fiat buffer” to cover short-term needs and ensure that operations continue smoothly.
Treasury Management and Risk Strategy
The Ethereum Foundation’s conservative approach to treasury management includes holding a fiat reserve to mitigate the risk associated with crypto market downturns. As of the latest report, the foundation holds $181.5 million in non-crypto investments, which can be used to fund operations if the crypto market experiences a prolonged slump. This fiat buffer serves as a financial lifeline, providing a degree of stability in an otherwise volatile market environment.
Despite this, the foundation remains committed to keeping a large portion of its assets in ether. This commitment has sparked debate within the community, as some argue that diversifying more aggressively could safeguard the foundation’s long-term financial health. The foundation, however, believes that ether’s potential upside outweighs the risks, maintaining a high level of confidence in Ethereum’s future.
Community Concerns Over Transparency
The Ethereum Foundation has faced increasing pressure from the community to be more transparent about its financial situation. The latest report, while comprehensive, comes after a long gap since the last update in April 2022. This delay has fueled frustration among stakeholders who believe that more frequent financial disclosures are necessary, especially given the foundation’s substantial influence over the Ethereum ecosystem.
Justin Drake, one of the foundation’s prominent researchers, attempted to address these concerns during a Reddit AMA. He disclosed that the Ethereum Foundation’s main wallet holds about $650 million, and the organization spends roughly $100 million annually. Drake also noted that regulatory complications had temporarily paused ETH sales, which delayed replenishing the fiat buffer. While these disclosures provided some reassurance, they also highlighted the need for the foundation to adopt a more consistent and proactive communication strategy.
Vitalik Buterin’s Perspective on Financial Strategy
Ethereum co-founder Vitalik Buterin also joined the conversation, sharing insights into the foundation’s budget strategy. In a Reddit comment, he explained that the foundation aims to spend around 15% of its remaining funds each year. This approach, he said, is designed to ensure that the foundation remains financially solvent for the foreseeable future, albeit with a gradually diminishing influence over time. Buterin’s remarks were aimed at providing long-term reassurance, but they also underscored the foundation’s acknowledgment of potential financial risks.
The community remains divided over whether this strategy is too conservative or too aggressive. Some members have praised the foundation’s foresight, while others argue that relying so heavily on ether’s performance could jeopardize future initiatives if the market does not recover as expected.
New Conflict of Interest Policy: Addressing Ethical Concerns
The Ethereum Foundation has also taken steps to address ethical concerns and potential conflicts of interest among its developers and researchers. The newly implemented conflict-of-interest policy requires team members to disclose any outside work or investments that exceed $25,000 annually. The goal is to ensure that developers’ financial interests do not conflict with their responsibilities to the foundation.
This policy comes in the wake of high-profile resignations from advisorship roles at EigenLayer, a prominent Ethereum restaking platform. Researchers Justin Drake and Dankrad Feist stepped down from their roles at EigenLayer after receiving significant token payouts, raising concerns about potential conflicts. By enforcing stricter guidelines, the Ethereum Foundation aims to maintain the integrity and trust of its team, though the resignations have sparked debate about the balance between individual opportunities and collective responsibility.
Price Volatility: A Major Challenge
Ether’s price volatility continues to be a critical factor affecting the Ethereum Foundation’s financial stability. Since March 2022, ether’s value has dropped significantly, impacting the foundation’s treasury. With ETH trading around $2,600 as of October 2024, down from $3,300 two years earlier, the foundation’s heavy reliance on this asset has raised concerns about future sustainability.
The crypto market’s cyclical nature poses ongoing challenges, and while some analysts predict a rebound, others warn of continued headwinds. The foundation’s financial strategy is predicated on the hope that ether’s price will recover, but if the market remains sluggish, difficult decisions may lie ahead. This reality has intensified calls from the community for more prudent financial planning and greater transparency.
Criticisms of Treasury Management and Communication
The Ethereum Foundation has not been immune to criticism regarding its treasury management. Community members have expressed frustration over unexplained movements of ether, such as the recent transfer of 35,000 ETH (valued at over $94 million) to the Kraken exchange. The timing of this transfer led to speculation and alarm among stakeholders, who demanded more clarity.
Executive Director Aya Miyaguchi addressed these concerns, explaining that the transfer was part of a pre-planned treasury management strategy. She emphasized that the foundation often needs to convert ETH to fiat for grants and salaries, and regulatory constraints had complicated this process. However, her reassurances did not entirely quell community worries, with many arguing for a more transparent and proactive approach to financial disclosures.
Social media platforms, particularly X (formerly Twitter), have been buzzing with demands for regular financial updates. Prominent community members have suggested that quarterly reports could help build trust and provide clarity on how the foundation manages its substantial funds. The Ethereum Foundation has acknowledged the feedback and hinted at plans to improve communication, but the community remains watchful.
Conclusion
The Ethereum Foundation’s latest financial report offers a detailed look at its treasury and spending patterns, but it also raises important questions about long-term sustainability and transparency. With a treasury heavily reliant on ether and a $100 million annual burn rate, the foundation’s financial strategy is under scrutiny. As the community continues to call for more frequent updates and a diversified investment approach, the foundation must find a balance between confidence in Ethereum’s future and responsible financial planning.