Ethereum Community Rattled by Foundation’s ETH Sales and Vitalik’s “DeFi Hate”

The Ethereum community is becoming increasingly frustrated with the entity that’s meant to support the ecosystem

The Ethereum Foundation (EF), primarily led by co-founder Vitalik Buterin and executive director Aya Miyaguchi, is facing backlash over a lack of transparency, selling mass quantities of ETH, and a perceived resistance to supporting Ethereum’s largest ecosystem, decentralized finance (DeFi).

Despite ETH already being the worst-performing major cryptocurrency of 2024, the Foundation sent another 35,000 ETH, worth $94 million, to the Kraken exchange within hours of ETH breaking above $2,700 on Aug. 23.

When community members demanded clarity, Miyaguchi responded, “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.”

Tempers are flaring on both sides of the debate. Justin Bons, CEO of Cyber Capital, went as far as saying, “…There is little hope left for ETH; its leadership sold out for L2s. Scaling ETH would destroy all capital & fees earned by L2s, as VCs cannot skim from L1 scaling. These parasites have twisted a public good & turned it into a platform for VC chains to rent-seek!”.

Part of the concern surrounds the EF’s seemingly erratic selling behavior. There is little to no clarity on how much ETH the Foundation will sell or when it will sell.

History even suggests that the EF may base its decision on market movements as opposed to a set schedule. The $94 million deposit on Aug. 23 came after ETH gained 6.3% in a single day. Prior to that, its last major deposit to Kraken on May 6, 2023, worth $29 million, also came the day after a 6% rally.

On the flip side, some pointed out that $100 million isn’t too far-fetched considering Ethereum’s $320 billion market capitalization.

“Let’s keep pushing for more transparency from the EF, but let’s also do it in a constructive way that benefits the ecosystem – trashing the EF for spending $100 million a year (which is absolutely tiny relative to ETHs market cap) is *not* constructive,” said Anthony Sassano of The Daily Gwei.

In response to the calls for transparency, Josh Stark of the Ethereum Foundation posted a thread on Tuesday morning breaking down the EF’s costs by category and announced that there will be an “EF Report” that will break down 2022 and 2023 spending. This is expected to be published before the end of November.

The post highlighted internal spending on ventures such as “privacy and scaling Explorations, cryptography research, and Devcon,” as well as external grants, including to the Nomic Foundation, L2Beat, and the Decentralization Research Center.

Stark’s brief report is a step towards the clarity that the Ethereum community is demanding.

Vitalik’s Views on DeFi

The criticism of the Foundation comes at a time of contention between many ETH users and Buterin.

This past weekend, Kain Warwick, founder of Synthetix and Infinex, spoke on the SteadyLads crypto podcast and drew attention to Vitalik’s alleged lack of support for DeFi protocols. DeFi is the primary use case for many Ethereum users, who are, by default, its investors, leading to some backlash on social media.

In response to a user who voiced their frustrations, Vitalik said, “The kinds of applications that I want to see are applications that are (i) useful in a sustainable way, and (ii) don’t sacrifice on the principles (permissionlessness, decentralization, etc). I think DEXes are great, and I use them every week. I think decentralized stablecoins (eg. RAI) are great. I think polymarket is great.”

But when discussing DeFi in particular, Vitalik denounced lending and borrowing markets, saying, “The yield comes from borrowers, trading fees, etc. Right, so this worries me. Because it feels like an ouroboros: the value of crypto tokens is that you can use them to earn yield which is paid for by… people trading crypto tokens.”.

Market participants have also been critical of the EF’s view of ETH as an asset and whether or not it sees it as a store of value, as many of its investors do. Vitalik addressed the concerns, stating, “If I did not believe in ETH as SOV, I would not hold ∼90% of my net worth in it.”

Despite the broader market rebound, ETH holders are feeling defeated following the “one-two punch” from the Foundation and the project’s co-founder. ETH is only up 0.3% over the last seven days, compared to BTC’s 4.7% and SOL’s 8.8%.