How did Vitalik and the Ethereum Foundation respond to the challenges faced by Ethereum under pressure

CoinWorld reports:
The main issue currently facing Ethereum is that industry applications are encountering a bottleneck; however, the low fees on Layer 2 are nurturing and facilitating the emergence of new applications. Following an improvement in liquidity conditions within the capital markets, the adoption rate in the crypto industry is expected to accelerate, and the future of Ethereum remains promising.
Written by: Ebunker



Ethereum Foundation Announces Spending Details



Recently, the sale of ETH by the Ethereum Foundation and its financial transparency have garnered significant attention within the crypto community. In response, the Ethereum Foundation released its official spending report at the end of August.
According to the figures, the category of “New Institutions” accounts for the largest portion of the Foundation’s expenditures, at 36.5%. Vitalik Buterin noted that this category includes grants provided to various organizations, such as the Nomic Foundation, L2BEAT, Decentralized Research Center, and 0xPARC Foundation. The primary goal of establishing these new organizations is to strengthen the Ethereum community in the long term.
The second-largest expenditure category for the Foundation is L1 research and development, which accounts for 24.9% of total spending. This category includes funding for external client teams (62%) and internal Foundation researchers (38%). Internal expenditures involve teams like Geth, Cryptography Research, Devcon, Solidity, and Next Billion, whose responsibilities are publicly available on their websites, GitHub, and social channels.
Additionally, the Foundation has published activity reports on external expenditures or grants for the past four years. Projects receiving Foundation funding in Q1 2024 include Xerxis, Ethereum Bogota, Motherless Africa, and ETHKL. Other expenditures by the Foundation include community development (12.7%), zero-knowledge applications (10.4%), internal operations (7.7%), developer platforms (6.5%), and L2 research and development (1.4%).
Apart from revealing the Ethereum Foundation’s expenditures, Vitalik also disclosed that his annual salary at the organization is approximately $139,500, which is not considered high compared to his net worth; in 2022, Forbes estimated Vitalik’s net worth to be around $1.5 billion.
Regarding the Ethereum Foundation’s fund management plan, Vitalik mentioned that the Foundation will spend 15% of its remaining funds each year, indicating that the Foundation will always exist, although its influence within the ecosystem will diminish over time. Foundation member Justin Drake anticipates that the Foundation still has about ten years of operational funding, although this will fluctuate with ETH price movements.
Vitalik Sells ETH Again?



After selling $441,000 worth of ETH on September 12, Vitalik faced renewed criticism; however, he explained that the order was placed in August and stated that it would be the last sale (to fund ecological defense projects), with no further similar transactions anticipated. It is reported that this transaction was triggered by an automatic Cowswap TWAP order, which had been set as early as August 29 (the TWAP strategy allows large orders to be executed by spreading them into smaller portions over a certain period).
According to data from LookOnChain, wallets associated with Vitalik sold a total of 190 ETH on September 12 and have sold $2.28 million worth of ETH since August 30. In response, Vitalik firmly asserted that he has never profited from selling ETH, as all proceeds have been allocated to funding projects, which he considers a subtle contribution.
How Does Vitalik and the Ethereum Foundation View DeFi?
Kain Warwick, a long-time DeFi developer, recently accused Vitalik and the Ethereum Foundation of being “against DeFi.” This developer claimed that the Foundation allocates only a small portion of its annual budget to promote the development of decentralized finance while wasting the majority of its budget on other unimportant matters.
Vitalik responded by emphasizing his long-term focus on decentralized exchanges and sustainable projects, reiterating his commitment to the decentralized finance sector. However, he expressed no interest in investing in unsustainable short-term projects, such as liquidity mining or temporary projects that rely on issuing new tokens and then selling them on the market.
Dankrad Feist, a team member of the Ethereum Foundation, stated that the Foundation does not have a unified view on DeFi; he personally enjoys DeFi, but believes it cannot solve all of Ethereum’s problems on its own. Financial markets do not create value by themselves but can generate more value for society by providing services such as liquidity and insurance. He highlighted that the most valuable contribution of DeFi on Ethereum is decentralized stablecoins. He hopes these stablecoins can become “pure” mediums of exchange for cryptocurrencies; however, they face serious scaling limitations, which is why custodial solutions are currently more popular. Nonetheless, he believes that having decentralized, censorship-resistant alternatives is highly valuable.
Recent Key Research Directions of the Ethereum Foundation
Despite controversial expenditures, the Ethereum Foundation is actively researching technological advancements across multiple domains.
Regarding zero-knowledge proofs (ZK), George Kadianakis mentioned that research on STARKs and SNARKs is underway, including recursive signature aggregation and post-quantum security implementations. Justin Drake noted that the introduction of SNARKs significantly reduces proof costs and emphasized the formal verification work for zkEVM.
For verifiable delay functions (VDF), Antonio Sanso stated that while they have not yet been implemented in Ethereum, the team is exploring potential applications but requires further improvements and evaluations.
Concerning maximal extractable value (MEV), Barnabé Monnot and s0isp0ke discussed research progress on solutions like ePBS, Execution Tickets, and Inclusion Lists, aimed at reducing MEV’s impact and enhancing network censorship resistance.
Vitalik Buterin and Justin Drake believe that binary hash trees may be used in the future instead of Verkle trees to accommodate technological upgrades. Additionally, formal verification and verifiable computation are seen as key technologies for ensuring code correctness and facilitating interoperability among different programs.
How Does the Foundation View ETH’s Value Accumulation Issue?
It is well known that according to the roadmap, rollups form a diversified ecosystem on Ethereum L1, with numerous DApps on L2 and extremely low fees for users; however, this raises concerns about the lack of value accumulation for ETH assets. On this matter, Ethereum Foundation members believe that the value accumulation of ETH is crucial for Ethereum’s success. ETH supports decentralized stablecoins and provides economic security for the network.
Justin Drake emphasized that Ethereum must become the programmable currency of the Internet, with ETH’s value accumulation achieved through total fees and monetary premiums. Total fees are more important than the fee per transaction. Even if each transaction fee is less than a cent, it can generate billions in revenue through 10 million transactions per second.
Another important aspect he mentioned is the proportion of ETH used as collateral currency, such as in support of DeFi. Various financial activities on Ethereum contribute to value capture for ETH.
Furthermore, he believes that in the Rollup roadmap, the Ethereum mainnet will be a convergence point for high-value activities, making L1 expansion necessary.
If Ethereum is designed to promote sustainable economic activities, the value accumulation of ETH will follow suit. The growth in ETH’s value will support the security and economic activities of the Ethereum ecosystem, thus propelling Ethereum to become a global financial platform.
How to Address Centralization Issues in Layer 2?
Currently, over 80% of Ethereum transactions occur on Layer 2 solutions, including Arbitrum, Optimism, Base, and zkSync. Recently, L2 networks have faced criticism for centralization; last month, Justin Bons from Cyber Capital raised concerns about the risks these networks pose due to their centralization. In response, Vitalik explained that highly decentralized L2 solutions cannot inherently withdraw user funds without achieving strong consensus.
On September 12, Vitalik stated that regardless of whether he invests, he will only publicly acknowledge L2s that reach Stage 1 or higher in decentralized work. He reiterated the importance he places on L2 and emphasized the significance of security, suggesting that initial protections should not be lifted until the proving system is thoroughly validated. Starting next year, he plans to only publicly mention (in blogs, speeches, and other public forums) L2s that are at Stage 1 or higher, offering “possibly brief grace periods” for truly interesting new projects.
Vitalik outlined the standards for Stage 1+ rollups, stating that the network needs 75% consensus from the council to overturn the proving system, with at least 26% of council members being independent from the rollup team. He believes that “this requirement is reasonable and necessary for the security of the network; the era of rollups being glamorized as ‘multisig’ is coming to an end, and the era of cryptographic trust has arrived.” It is reported that several zero-knowledge (ZK) rollup teams plan to achieve this milestone by the end of this year.
Conclusion
In summary, despite facing some FUD, the Ethereum team remains proactive in addressing and resolving issues. As the largest application public chain, Ethereum’s fundamentals have not been shaken, and there is no need for excessive pessimism.
The main issue currently facing Ethereum is that industry applications are encountering a bottleneck; however, the low fees on Layer 2 are nurturing and facilitating the emergence of new applications. Following an improvement in liquidity conditions within the capital markets, the adoption rate in the crypto industry is expected to accelerate, and the future of Ethereum remains promising