RV Blog What Is the Ethereum Foundation?

What Is the Ethereum Foundation?

The Ethereum Foundation

The Ethereum Foundation (EF) is a non-profit organization dedicated to supporting Ethereum. It is located in the crypto valley in Zug, Switzerland. In its 2022 annual report, the EF describes itself as “not a tech company, or a ‘normal‘ non-profit. Just as Ethereum requires new concepts and technologies, it has spawned new kinds of organizations. We are at the frontier of a new kind of organization: one that supports a blockchain, without controlling it.” In other words: The Ethereum Foundation is an organization dedicated to fostering and driving forward Ethereum’s vision of a decentralized world without claiming ownership over Ethereum.

Nevertheless, until today the EF is the most influential organization within the Ethereum ecosystem and its actions are closely followed across the crypto universe. A key component of the EF’s influential position is Vitalik Buterin, Ethereum’s mastermind and founder, who is an active part of the foundation’s executive board.

The EF’s mission is to secure Ethereum’s long-term success. It allocates resources to critical projects, funds research, development, and education out of its massive treasury, is a valued voice within the Ethereum community, and advocates for Ethereum to the world outside of blockchains. Its goal is to empower developers to create next-generation decentralized protocols and lay the foundation for a more free and trustless internet.

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Who controls the Ethereum Foundation?

The Ethereum Foundation is run by an executive board consisting of three people. Aya Miyaguchi serves as the foundation’s executive director, with Vitalik Buterin and Patrick Storchenegger completing the board. The foundation works closely with developer teams and the Ethereum community.

The EF has no control over Ethereum but can allocate the foundation’s resources according to its vision for Ethereum. Since a solo mission by the EF is likely to fail, the EF has to stay in close contact with the Ethereum community to make sure their interests are aligned.

Who founded the Ethereum Foundation?

The Ethereum Foundation was created in the summer of 2014 by Vitalik Buterin, Gavin Wood, and other members of the Ethereum founding team. The non-profit organization was created to govern the development efforts of Ethereum and to manage the organization’s treasury.

In February of 2014, the Ethereum team had already founded Ethereum Switzerland Ltd., a registered company based in Zug, Switzerland, to manage the development of Ethereum under a legal structure. To further fund the project, the team decided to conduct an online public crowd sale — generally referred to as an ICO, which stands for Initial Coin Offering — from July to August 2014. In this sale, investors could buy 2,000 Ether for 1 Bitcoin.

At the time, there was a lot of legal uncertainty concerning such digital token sales. The question even experienced lawyers struggled to answer was if a token sale would eventually qualify as an unlicensed security sale under U.S. securities law and thus potentially lead to legal problems. For this reason, the Ethereum team had set up camp in Switzerland, where legal conditions were more favorable.

To further minimize the risk of legal issues and taxable events, the Ethereum team decided to set up the Ethereum Foundation prior to the public crowd sale and conduct the token sale under the foundation’s name. The public crowd sale turned out to be an enormous success, and the EF raised $18 million in Bitcoin within 42 days. Since then, the EF has been in charge of managing Ethereum’s war chest. Ethereum Switzerland Ltd., on the other hand, was no longer of use and was liquidated in 2018.

How much ETH does the Ethereum Foundation have?

According to their annual report, the Ethereum Foundation owns 0.297% of the total Ether supply, which is approximately 350,000 Ether. The latest numbers can always be checked on EF’s Ethereum wallet on Etherscan.

Additionally, the EF owns $300 million in non-crypto assets, which are mainly held in fiat currencies. This ensures that the EF has sufficient resources and liquidity in case of a multi-year market downturn without having to sell its ETH at unfavorable prices. The cash position has been built by selling part of the foundation’s ETH holdings over recent years. Vitalik has proven to have an exceptional ability to time the market, as he managed to convince the EF board twice to sell large ETH positions at the market top, right before prices collapsed again.

How does the Ethereum Foundation make money?

Ether, Ethereum’s native coin, was pre-mined at the launch of the Ethereum network on July 30, 2015. In total, 72 million Ether were created that day. Sixty million Ether went to the investors that participated in the public pre-sale the year before, another 6 million were given to the creators and developers of Ethereum, and the remaining 6 million Ether was deposited with the Ethereum Foundation.

Since that day, the Ethereum Foundation has financed all its activities with this initial Ether donation. Technically, the Ethereum Foundation does not currently make any money or receive any cash flows from the Ethereum network. Nevertheless, in U.S.-dollar terms, the foundation is much better off than at the beginning, thanks to the strong appreciation of Ether.

While the amount of Ether in their wallet is steadily decreasing, their treasury measured in U.S. dollars has been steadily increasing. As long as the Ether price is appreciating, the foundation will be able to sustain itself for many years to come. And with Ethereum’s switch from Proof-of-Work to Proof-of-Stake, the foundation will be able to stake parts of its Ether holdings on the network to generate a steady return in ETH, which might even be enough to pay for all their expenses in the future.

What are Ethereum Foundation grants?

Over the years, the EF has experimented with different strategies to move the Ethereum ecosystem forward. This has led to a layered model, where many different groups are being involved in decision-making about where to allocate resources and how to further develop Ethereum.

  • The first layer are EF teams. These are groups that work within the EF to contribute directly to the Ethereum ecosystem.
  • The second layer are Grants. These are teams outside of the EF that are funded by the EF for a specific purpose.
  • The third layer are Delegated Domain Allocators. These outsider groups help to make decisions about what to fund within specific domains.

The final layer is Third-Party Funding. The EF gives money directly to outside third-party groups and lets them decide how to allocate it effectively.

Putting it all together

The EF is at the heart of Ethereum’s development. It contributes to the growth of the Ethereum ecosystem not only financially but also as a coordinating force. Even though technically the foundation has no control over Ethereum, its influence on the community and therefore the protocol is still strong, especially since Vitalik Buterin is still a board member.

While the EF is of great significance to drive Ethereum forward, critics argue that it is also a centralizing force that has too much influence over a decentralized project like Ethereum. It might therefore be that the foundation will fade more into the background after the Ethereum 2.0 merge.