Ethereum Foundation Boosts Transparency: Spending, Vitaliks ETH Sales, and DeFi Perspective

Ethereum Foundation Boosts Transparency: Spending, Vitaliks ETH Sales, and DeFi PerspectiveRecently, the Ethereum Foundations ETH sales and transparency regarding its funds have garnered significant attention from the crypto community. In response, the Foundation unveiled its official spending breakdown in late August, along with explanations for Vitalik Buterins ETH sales and his view on DeFi

Ethereum Foundation Boosts Transparency: Spending, Vitaliks ETH Sales, and DeFi Perspective

Recently, the Ethereum Foundations ETH sales and transparency regarding its funds have garnered significant attention from the crypto community. In response, the Foundation unveiled its official spending breakdown in late August, along with explanations for Vitalik Buterins ETH sales and his view on DeFi.

Breakdown of Ethereum Foundation Spending: Where Does the Money Go?

According to the chart released by the Foundation, New Institutions account for the largest portion of spending at 36.5%. Vitalik Buterin explained that this category includes grants to various organizations like the Nomic Foundation, L2BEAT, Decentralized Research Center, and the 0xPARC Foundation. The primary objective of building these new institutions is to strengthen the Ethereum community for the long term.

The Foundations second largest spending category is L1 research and development, which takes up 24.9% of total spending. This category includes grants to external client teams (62%) and internal Foundation researchers (38%). Internal spending encompasses teams like Geth, Cryptography Research, Devcon, Solidity, and NextBillion, whose responsibilities are publicly known and documented through their websites, GitHub, and social channels.

The Foundation also allocates spending to other areas, including community development (12.7%), zero-knowledge applications (10.4%), internal operations (7.7%), developer platforms (6.5%), and L2 research and development (1.4%).

Its worth noting that the Foundation has released activity reports concerning external spending or grants for the past four years. Projects receiving Foundation funding in Q1 2024 include Xerxis, EthereumBogota, MotherlessAfrica, and ETHKL.

Vitaliks Salary and ETH Sales Spark Controversy

In addition to revealing the Ethereum Foundations spending, Vitalik disclosed that his annual salary from the organization is approximately $139,500. This figure is relatively small compared to his estimated net worth, which Forbes pegged at $1.5 billion in 2022.

Regarding the Foundations fund management plan, Vitalik mentioned that they spend 15% of their remaining funds annually. This implies that the Foundation will persist indefinitely, but its influence within the ecosystem will diminish over time. Justin Drake, a member of the Foundation, estimates that it has about 10 years of operational funds, although this could fluctuate depending on the price of ETH.

Vitalik faced criticism once again following his September 12th sale of $441,000 worth of ETH. He clarified that this order was placed in August and labeled it as the final sale (for funding ecosystem defense projects), with no further similar transactions expected. This transaction was reportedly triggered by a Cowswap twap automated order that had been set as early as August 29th (twap strategy can execute large orders by splitting them into smaller portions over a certain period). Data from LookOnChain suggests that the wallet associated with Vitalik sold 190 ETH on September 12th, totaling $2.28 million in ETH sold since August 30th. Vitalik firmly asserts that he has never profited from selling ETH, as all proceeds have been directed towards funding projects.

Vitalik and the Ethereum Foundations Perspective on DeFi

Kain Warwick, a long-time participant in DeFi development, recently accused Vitalik and the Ethereum Foundation of opposing DeFi. The developer claimed that the Foundation only dedicates a small portion of its annual budget to promoting decentralized finance and squanders the majority of its budget on other less vital endeavors.

In response, Vitalik highlighted his long-standing focus on decentralized exchanges and sustainable projects, reiterating his commitment to decentralized finance. However, he expressed disinterest in short-term projects with unsustainable prospects, such as liquidity mining or temporary projects that depend on issuing new tokens and then selling them on the market.

Dankrad Feist, a member of the Ethereum Foundation team, stated that the Foundation doesnt have a unified view on DeFi. While he personally enjoys DeFi, he believes it doesnt solve all of Ethereums problems on its own. Financial markets themselves dont create value, but they can generate more value for society by providing services like liquidity and insurance. DeFis most valuable contribution to Ethereum lies in decentralized stablecoins. He envisions these stablecoins as purely crypto-based exchange mediums, but they face significant scaling limitations, making custodial solutions more popular at present. Nevertheless, he finds the existence of decentralized, censorship-resistant alternatives extremely valuable.

Key Research Focuses for the Ethereum Foundation

Despite its spending being subject to debate, the Ethereum Foundation is actively researching advancements in various fields.

Regarding zero-knowledge proofs (ZK), George Kadianakis stated that he's utilizing research conducted on STARKs and SNARKs, such as recursive signature aggregation and implementing post-quantum security. Justin Drake mentioned that the introduction of SNARKs has significantly reduced proof costs and highlighted the formal verification efforts of zkEVMs.

Focusing on verifiable delay functions (VDFs), Antonio Sanso indicated that while not yet implemented in Ethereum, the team is exploring potential applications. However, further improvement and evaluation are required.

Concerning maximum extractable value (MEV), Barnab Monnot and s0isp0ke discussed the progress of research into solutions like ePBS, ExecutionTickets, and InclusionLists to mitigate the impact of MEV and enhance the networks censorship resistance.

Vitalik Buterin and Justin Drake believe that future upgrades might employ binary hash trees instead of Verkle trees to accommodate technological advancements. Moreover, formal verification and verifiable computation are considered crucial technologies for ensuring code correctness and facilitating interoperability between different programs

How Does the Ethereum Foundation Perceive the Issue of ETH Value Accumulation?

As per the roadmap, rollups are forming a diverse ecosystem on Ethereum L1, with numerous DApps on L2 and minimal user fees. However, this scenario brings up the issue of a lack of value accumulation for ETH assets.

In response, Ethereum Foundation members acknowledge that ETH value accumulation is essential for Ethereums success. ETH serves as a currency to support decentralized stablecoins and provides economic security for the network.

Justin Drake, a Foundation member, believes that Ethereum must become the programmable money of the internet. ETH value accumulation will occur through total fees and currency premium. The crucial factor is the total fees, not the fee per transaction. Even if each transaction fee is less than a penny, generating tens of billions of dollars in revenue per second with 10 million transactions is possible.

Another important aspect he mentioned is the usage rate of ETH as collateral, such as supporting DeFi. Various financial activities on Ethereum contribute to capturing value for ETH.

Additionally, he believes that within the rollup roadmap, the Ethereum mainnet will become a convergence point for high-value activities. L1 scaling is necessary. Designing Ethereum to foster sustainable economic activity will naturally lead to ETH value accumulation. The value growth of ETH will support the security and economic activities of the Ethereum ecosystem, ultimately propelling Ethereum to become a global financial platform.

Addressing the Centralization Issue in Layer 2

Currently, over 80% of Ethereum transactions occur on Layer 2 solutions including Arbitrum, Optimism, Base, and zkSync. Lately, L2 networks have faced criticism due to their centralization. Last month, Justin Bons of CyberCapital expressed concerns about the risks posed by these networks due to their centralized nature.

In response, Vitalik explained that highly decentralized L2 solutions inherently cannot take funds from users without achieving strong consensus.

On September 12th, Vitalik stated he would only publicly acknowledge L2s that have reached Stage 1 or higher in their decentralized efforts, regardless of whether he invests in them. He reiterated the importance of L2s while emphasizing security, recommending against removing initial protections until proof systems have been thoroughly validated.

Starting next year, he plans to publicly mention (e.g., in blogs, speeches, etc.) only L2s at Stage 1 or above. He will also provide a potentially brief grace period for genuinely interesting new projects.

Vitalik outlined the criteria for a Stage 1+ rollup: the network needs 75% consensus from its council to overturn the proof system, and at least 26% of council members must be independent of the rollup team. He believes this requirement is reasonable and necessary for the security of the network. The era of rollups being glorified multisigs is ending, the era of cryptographic trust has arrived. Several zero-knowledge (ZK) rollup teams plan to achieve this milestone by the end of the year.

The Future of Ethereum Holds Promise

In conclusion, despite facing some FUD, the Ethereum team remains proactive in confronting and resolving issues. As the largest public chain for applications, Ethereums fundamentals remain unshaken, eliminating the need for undue pessimism.

The biggest challenge Ethereum is currently facing is the bottleneck in industry applications. However, low transaction fees on L2 are fostering and promoting the emergence of new applications. In the capital market, the emergence of new applications is creating opportunities for investment and growth. While the Ethereum ecosystem faces uncertainties and challenges, its potential for innovation and development remains vibrant.