Ethereum Under Pressure: How Vitalik and the Foundation Are Responding to CriticismEthereum Foundation Reveals Expenditure BreakdownRecently, the @ethereum Foundation’s sale of $ETH and its financial transparency have drawn significant attention from the crypto community. In response, the Ethereum Foundation released its official expenditure breakdown at the end of August.According to the report, “new institutions” accounted for the largest portion of the foundation’s spending, at 36.5%. @VitalikButerin explained that this category includes grants to various organizations such as the @NomicFoundation , @l2beat, the Decentralization Research Centre, and @0xPARC Foundation. The primary goal of funding these new institutions is to strengthen the Ethereum community in the long term.The second-largest spending category was #L1 R&D, which made up 24.9% of the total. This category includes funding for external client teams (62%) and internal foundation researchers (38%). Internal teams such as Geth, Cryptography Research, Devcon, Solidity, and Next Billion are responsible for public projects, with information about their activities available on their websites, GitHub, and social channels.Additionally, the foundation has consistently published reports on its external spending or grant activities over the past four years. In Q1 2024, the foundation supported projects including Xerxis, Ethereum Bogotá, Motherless Africa, and ETHKL. The remaining expenses included community development (12.7%), #zk applications (10.4%), internal operations (7.7%), developer platforms (6.5%), and #L2 R&D (1.4%).In addition to revealing the foundation’s expenditure, Vitalik also disclosed that his annual salary from the organization is approximately $139,500, which, given his estimated net worth of $1.5 billion (as reported by Forbes in 2022), is relatively modest.Regarding the foundation’s financial management strategy, Vitalik noted that the foundation plans to spend 15% of its remaining funds annually. This approach ensures the foundation’s long-term presence, though its influence in the ecosystem may diminish over time. Foundation member Justin Drake estimated that the foundation has around 10 years of operational funding left, though this will fluctuate with the price of ETH.Did Vitalik Sell More ETH?https://t.co/NC08Oc3vUlVitalik came under fire again after selling $441,000 worth of ETH on September 12, but he clarified that the order was placed in August, marking his last planned sale (intended to fund a defense project for the ecosystem). He noted that no further sales of this nature are expected. The transaction was triggered by a Cowswap twap automatic order, which had been set on August 29. Twap strategies allow large orders to be executed in smaller portions over time.According to LookOnChain data, a wallet linked to Vitalik sold 190 ETH on September 12, bringing the total ETH sold since August 30 to $2.28 million. Vitalik insisted that he has never profited from selling ETH, as all proceeds have been used to fund projects that quietly support the ecosystem.How Do Vitalik and the Ethereum Foundation View DeFi?Kain Warwick, a long-time #DeFi developer, recently accused Vitalik and the Ethereum Foundation of being “anti-DeFi.” Warwick claimed that the foundation allocates only a small portion of its budget to advancing decentralized finance while spending most of it on what he considers less important areas.Vitalik responded by emphasizing his long-term focus on sustainable projects and decentralized exchanges. He reiterated his commitment to DeFi but expressed disinterest in short-term, unsustainable projects, such as those relying on liquidity mining or issuing new tokens to sell into the market.Ethereum Foundation team member @dankrad Feist added that the foundation has no unified stance on DeFi. He personally values DeFi but believes it cannot solve all of Ethereum’s challenges. While financial markets don’t inherently create value, they can provide essential services like liquidity and insurance. Feist sees DeFi’s most valuable contribution to Ethereum as decentralized stablecoins. He hopes these stablecoins can become “pure” crypto-native mediums of exchange but acknowledges their significant scalability limitations. As a result, custodial solutions are currently more popular. Despite this, he believes having decentralized, censorship-resistant alternatives remains valuable.Key Areas of Research for the Ethereum FoundationDespite controversy over its spending, the Ethereum Foundation is actively researching several technological advancements.In the realm of ZK proofs, George Kadianakis is working on #STARKs and #SNARKs, with research focused on recursive signature aggregation and post-quantum security implementation. @drakefjustin Justin Drake noted that the introduction of SNARKs has significantly reduced proof costs and highlighted ongoing formal verification work on #zkEVM.For verifiable delay functions (#VDF), Antonio Sanso mentioned that while they haven’t been implemented in Ethereum yet, the team is exploring their potential applications, but further refinement and evaluation are needed.In terms of #MEV, @barnabemonnot Barnabé Monnot and s0isp0ke discussed research on proposals such as ePBS, Execution Tickets, and Inclusion Lists to reduce MEV’s impact and improve the network’s censorship resistance.Vitalik Buterin and Justin Drake also suggested that Ethereum might eventually shift to using binary hash trees instead of Verkle trees to accommodate future technical upgrades. Formal verification and verifiable computing are seen as critical technologies for ensuring code correctness and promoting interoperability between different programs.How Does the Foundation View ETH Value Accumulation?It’s well known that the roadmap involves rollups forming a diverse ecosystem on Ethereum L1, with a large number of DApps on L2 offering low user fees. However, this raises the question of ETH’s lack of value accumulation. The foundation views ETH value accumulation as critical to Ethereum’s success, with ETH serving as currency, supporting decentralized stablecoins, and providing economic security for the network.Justin Drake believes that Ethereum must become the programmable money of the internet, and ETH’s value accumulation will be realized through total fees and monetary premium. The focus should be on total fees rather than per-transaction fees. Even if transaction fees are less than a penny, 10 million transactions per second could still generate billions of dollars in revenue.Another key aspect is the use of ETH as collateral, especially in supporting DeFi. Different financial activities on Ethereum will drive value capture for ETH.Moreover, Drake sees Ethereum’s mainnet as a hub for high-value activities in the rollup roadmap, making L1 expansion necessary.By designing Ethereum to support sustainable economic activity, ETH’s value accumulation will naturally follow. ETH’s growing value will support the Ethereum ecosystem’s security and economic activity, driving Ethereum’s progress as a global financial platform.How Will Ethereum Tackle L2 Centralization?Currently, over 80% of Ethereum transactions occur on Layer 2 solutions like #Arbitrum, #Optimism, #Base, and #zkSync. Recently, concerns about the centralization of L2 networks were raised by Justin Bons of Cyber Capital, who argued that these networks pose risks due to their centralized nature. In response, Vitalik clarified that highly decentralized L2 solutions cannot, by design, seize user funds without broad consensus.On September 12, Vitalik stated that he would only publicly acknowledge L2 solutions that achieve Stage 1 or higher in decentralization, regardless of his personal investments. He emphasized the importance of security and recommended against removing initial protections until proof systems are fully verified. Starting next year, he plans to only mention (in blogs, speeches, and public platforms) L2 solutions that meet Stage 1 or higher, though he may allow temporary exceptions for genuinely promising new projects.Vitalik outlined the standards for a Stage 1+ rollup, where 75% of a council’s consensus is needed to override the proof system, and at least 26% of council members must be independent of the rollup team. He believes “this requirement is reasonable and essential for network security, signaling the end of the ‘multi-signature’ era for rollups and the beginning of the era of cryptographic trust.” Several ZK rollup teams are expected to meet this milestone by the end of the year.ConclusionDespite the current FUD, the Ethereum team is actively addressing challenges. As the largest smart contract platform, Ethereum’s fundamentals remain strong, and there’s no reason for excessive pessimism.Ethereum’s biggest hurdle right now is the bottleneck in industry applications. However, L2’s low fees are setting the stage for a wave of new applications. Once liquidity in capital markets improves, crypto adoption rates will accelerate, and Ethereum’s future remains promising.https://t.co/g7RdpMnaRW