Ethereum Community Shaken by Foundation’s ETH Sales and Vitalik’s Criticism of DeFi

The Ethereum community is expressing growing dissatisfaction with the organization responsible for nurturing the ecosystem. The Ethereum Foundation (EF), chiefly overseen by co-founder Vitalik Buterin and executive director Aya Miyaguchi, is under fire for its lack of transparency, substantial sales of ETH, and apparent reluctance to back Ethereum’s primary ecosystem, decentralized finance (DeFi).

Despite ETH being the worst-performing major cryptocurrency in 2024, the Foundation transferred an additional 35,000 ETH, valued at $94 million, to the Kraken exchange shortly after ETH surpassed $2,700 on August 23. When pressed for clarification, Miyaguchi stated, “This is part of our treasury management activities. EF has a budget of ~$100m per year, which is largely made up of grants and salaries, and some of the recipients are only able to accept in fiat.”

Tensions are escalating on both sides of the argument. Justin Bons, CEO of Cyber Capital, voiced strong criticism, suggesting that “there is little hope left for ETH; its leadership sold out for L2s.” He further elaborated that scaling ETH could jeopardize the capital and fees earned by L2s, portraying the current state as a platform for VC chains to exploit.

A major point of concern revolves around the EF’s seemingly unpredictable selling patterns. There is a lack of clarity regarding the quantity of ETH the Foundation intends to sell and the timing of such sales. Past behavior indicates that the EF’s decisions may be influenced by market fluctuations rather than a predetermined schedule. The $94 million deposit on August 23 coincided with a 6.3% increase in ETH’s value. Similarly, the previous substantial deposit to Kraken on May 6, 2023, worth $29 million, occurred following a 6% surge in value.

On a contrasting note, some argue that $100 million is not exorbitant considering Ethereum’s $320 billion market capitalization. Anthony Sassano of The Daily Gwei emphasized the importance of demanding transparency from the EF while advocating for constructive dialogue that benefits the ecosystem.

In response to the transparency demands, Josh Stark of the Ethereum Foundation outlined the EF’s expenses by category and announced the forthcoming “EF Report,” detailing spending for 2022 and 2023, scheduled for release before the end of November. The report will shed light on internal investments in privacy and scaling explorations, cryptography research, and external grants to entities like the Nomic Foundation, L2Beat, and the Decentralization Research Center.

This initiative by Stark represents a step toward meeting the Ethereum community’s calls for transparency. The criticism of the Foundation coincides with a period of contention between many ETH users and Vitalik Buterin, particularly regarding his stance on supporting DeFi protocols. DeFi serves as a primary use case for numerous Ethereum users, prompting backlash against Vitalik’s perceived lack of support for these protocols.

Vitalik’s remarks on DeFi have stirred further debate, with his reservations about lending and borrowing markets raising concerns within the community. Additionally, questions have arisen about the EF’s perspective on ETH as an asset and its role as a store of value, a topic Vitalik addressed by affirming his belief in ETH’s value proposition through his substantial holdings.

Despite a broader market recovery, ETH holders are feeling disheartened following recent developments involving the Foundation and its co-founder. Over the past week, ETH has only seen a marginal 0.3% increase, contrasting with BTC’s 4.7% and SOL’s 8.8% gains.