Ethereum Foundation Financial Report Full Text: Reserve Fund Size $1.6 Billion, Total Expenditure of $48 Million Last Year

Author: Ethereum Foundation Original Title: “Ethereum Foundation Report” Compiled by: Moni, Planet Daily

Recently, the Ethereum Foundation released its financial and operational report for the first quarter of 2022, summarized as follows:

What is the Ethereum Foundation?

The Ethereum Foundation (EF) is a non-profit organization that supports the Ethereum ecosystem and is part of a large community composed of organizations, individuals, and companies. These organizations, individuals, and companies provide funding for the development of the protocol and work together for the growth of the community and Ethereum.

In fact, it is difficult to categorize the Ethereum Foundation into a specific type of organization; they are neither a tech company nor a "regular" non-profit organization. Just like the new concepts and technologies emerging on Ethereum, the Ethereum Foundation represents a new form of organization that supports the long-term development of Ethereum without trying to control it.

Overall, the Ethereum Foundation is more like a team community rather than a traditional organization.

All teams within the Ethereum Foundation community are passionate and dedicated to a common vision—immersing themselves in Ethereum and making a positive contribution to humanity. Of course, many teams within the Ethereum Foundation can exist independently; they have their own processes, goals, budgets, and products. Thus, this highly aligned and collaborative team community constitutes the current Ethereum Foundation:

• Some teams are specifically responsible for the development and maintenance of important parts of the Ethereum tech stack.
• Some teams explore the technological frontiers of Ethereum and its ecosystem.
• Some teams focus on the ecosystem itself, delving into the system to find new challenges and opportunities.
• Other teams concentrate internally, ensuring that the resources of the Ethereum Foundation are allocated reasonably, problems are solved correctly, and that teams within the community receive the support they need to achieve their goals.

What is the philosophy of the Ethereum Foundation?

Since its establishment, several key philosophies and principles have become fundamental guides for the Ethereum Foundation's decisions and actions. These core principles guide the decision-making of the leadership of the Ethereum Foundation and have a significant impact on the entire team.

1. Long-term Consideration

The impact of the Ethereum Foundation community on society as a whole may affect the next few decades or even centuries, and this influence cannot be measured in quarters or fiscal years. Frankly speaking, as a coordinating protocol, the lifecycle of the Ethereum protocol will extend into the future.

This also means that the planning of the Ethereum Foundation will be long-term, focusing not only on the interests of current society but also on the future. It is like a gardener planting seeds of hope for future generations.

2. Shared Success

The mission of the Ethereum Foundation is to resist the concentration of power, distribute opportunities to the community, and push resources towards all teams in the ecosystem. The foundation takes pride in the value created by more teams, as this means Ethereum is becoming more decentralized and moving towards sustainability.

If the "shared success" principle is not followed, then as Ethereum gains widespread adoption around the world, the Ethereum Foundation is likely to monopolize all the reputation and influence, whereas the Ethereum ecosystem should not be represented by just the Ethereum Foundation.

Based on this idea, the Ethereum Foundation is working to collaborate as much as possible with the community, considering issues from the perspective of the entire community and providing as much help as possible, rather than just focusing on itself.

3. Philosophy Management

The Ethereum community is a soulful community, and many of its advanced philosophies have shaped the current state of Ethereum. These philosophies include open-source, decentralization, open access, privacy protection, and more. Of course, the Ethereum Foundation cannot dictate the philosophies of the Ethereum community; they are more concerned with how to cultivate those important teams.

If we liken the Ethereum Foundation to a gardener, then their job is to nurture Ethereum's "natural ecosystem." Like a gardener, the foundation's role is merely to cultivate and support, not to control or force natural development; they carefully nurture the seedlings beneath their feet.

How does the Ethereum Foundation support the Ethereum ecosystem?

Over the years, the Ethereum Foundation has tried various methods to support the Ethereum ecosystem and has gradually formed a "layered" model, in which many different groups can participate in resource allocation decisions.

The first layer is the Ethereum Foundation team—teams that directly contribute to the ecosystem; the second layer is called "Grants," which provides funding for teams outside the Ethereum Foundation; the third layer is known as "Delegated Domain Allocators," where the Ethereum Foundation collaborates with external groups to jointly decide which teams within a specific scope will receive funding. Additionally, the Ethereum Foundation also provides direct funding to external groups, allowing them to decide how to allocate funds effectively.

First Layer: Ethereum Foundation Team

The Ethereum Foundation is a team-oriented community. These teams have made their own contributions to the development of the entire ecosystem, with standout teams including Geth, Solidity, Devcon, and more.

Moreover, looking at the content and modes of work of these teams, the teams within the community are very diverse. Some teams prefer to operate independently as unique teams; others prefer to integrate into the community and closely collaborate with other Ethereum Foundation teams. Some teams like to be the focus of community attention, while others prefer a more low-key approach.

Regardless, the Ethereum Foundation embraces diversity, providing support in terms of funding, operations, and development space for various teams. Additionally, the Ethereum Foundation sometimes dynamically adjusts based on new needs in the ecosystem, such as creating new teams or reducing support for certain teams.

Here are two teams supported by the Ethereum Foundation:

1. Devcon

The goal of the Devcon team is to support the Ethereum ecosystem by organizing various events, including the Ethereum Developer Conference Devcon and launching new initiatives like Devconnect. Additionally, the team consistently supports Ethereum community activities, working to develop the Ethereum community around various events.

2. Geth

The Geth team is responsible for the development and maintenance of go ethereum (Geth). Users can access the Ethereum blockchain through the geth client and related libraries. Currently, Geth is the most popular Ethereum client and an indispensable part of the Ethereum ecosystem.

Second Layer: Grants

In 2021, the Ethereum Foundation provided a total of $19.6 million in funding sponsorship to teams within the ecosystem. The entire sponsorship process is conducted through an open sponsorship program called the "Ecosystem Support Program (ESP)," with the specific process being: the ESP team receives applications, processes them, solicits feedback, approves grants, and manages grant relationships. In addition, the ESP team is also seeking other non-financial ways to support teams applying for funding.

Furthermore, the Ethereum Foundation team also receives sponsorship from other teams, using these sponsorship funds to achieve their established goals within the ecosystem.

It is worth mentioning that these sponsorship funds are not only obtained through applications but also include some "proactive" sponsorships. Typically, the Ethereum Foundation team seizes various opportunities to develop and improve the Ethereum ecosystem, engaging in discussions with community members about financial sponsorship.

In many cases, the Ethereum Foundation collaborates with other teams in the Ethereum ecosystem to jointly initiate sponsorship activities. For example, in 2021, the foundation collaborated with a group of community donors to raise $1.5 million for the execution client teams. However, the Ethereum Foundation hopes to see teams not rely on a single channel for funding but to be able to secure funding sources directly and smoothly achieve their respective goals.

Note: The above figures reflect the grant situation of the Ethereum Foundation in 2021. Additionally, the Ethereum Foundation has also disclosed the total amount of sponsorship agreements signed in 2021, which exceeds previous years due to their commitment to sponsor a large project; however, this funding will not be disbursed all at once but will be gradually released over several years.

Here are some examples of teams sponsored by the Ethereum Foundation:

1. Uniswap

In 2018, the Ethereum Foundation provided the first batch of external sponsorship funds to an Ethereum developer. This developer, through their exploration, developed a decentralized exchange called Uniswap. At that time, the Ethereum Foundation provided $50,000 and 120 ETH in sponsorship to this developer to ensure that the Uniswap mainnet could successfully debut at the 2018 Ethereum Global Developer Conference Devcon4, as significant funds were needed for auditing, preparing materials, and UI design beforehand. Since its launch, Uniswap has become an indispensable key infrastructure in the Ethereum ecosystem, and today the Uniswap community manages up to $4.8 billion in funds—part of which is used to sponsor the Ethereum ecosystem, all thanks to that funding four years ago.

2. Consensus ("Eth2") Consensus Client

Since 2018, the Ethereum Foundation has sponsored multiple teams dedicated to consensus clients (formerly "Eth2 clients"). Through the foundation's persistent efforts over the years, Ethereum has successfully transitioned to a proof-of-stake consensus mechanism. Recently, there may also be five consensus clients to be integrated.

Third Layer: Delegated Domain Allocators

The Ethereum Foundation has always actively collaborated with experts in the field, empowering them to review and provide sponsorship within specific scopes, while the foundation itself also receives guidance on funding allocation.

Experts who have collaborated with the Ethereum Foundation each have their areas of expertise, including developing zero-knowledge technologies and staking infrastructure, focusing on improving developer experience and onboarding training, and more. If the Ethereum Foundation were to rely solely on itself, its power would ultimately be limited, so it must rely on collaboration with a broader community to allocate resources more effectively and provide funding for public goods within the ecosystem.

Collaboration Examples:

1. Nomic Labs

In June 2019, the Ethereum Foundation began collaborating with Nomic Labs. Initially, the foundation provided funding sponsorship to improve the developer experience on Ethereum. However, over time, this relationship evolved, and Nomic Labs was entrusted to become a fund allocator. This means the Ethereum Foundation is tirelessly seeking various ways to allocate funds throughout the ecosystem to improve the developer experience on Ethereum.

2. Devfolio

Since 2019, the Ethereum Foundation has been collaborating with the Devfolio team, which primarily helps guide the Ethereum Foundation's support for the Indian Ethereum ecosystem, providing grants, running scholarship programs, and more.

3. Third-party Funding

As the ecosystem matures, the Ethereum Foundation has begun reallocating more funds to independent third-party organizations, working together to support the ecosystem and fund public goods. To this end, the Ethereum Foundation collaborates with organizations such as 0xPARC, Nomic Foundation, ETHGlobal, and uses on-chain applications like CLR / Quadratic Funding to empower the community.

Example 1: CLR / Quadratic Funding

Quadratic Funding is a democratic mechanism for funding public goods. Since 2019, the Ethereum Foundation has collaborated with organizations like Gitcoin and CLR.FUND to allocate significant funds, then match them with individual donations from the Ethereum community. The Ethereum Foundation will continue to invest in making Quadratic Funding scalable and secure so that the community can use these tools to allocate funds.

Example 2: 0xPARC

0xPARC is a new organization dedicated to supporting decentralized application development. In 2021, the Ethereum Foundation provided a substantial grant to 0xPARC, which will use this grant to fund its activities and distribute it within the ecosystem through grants and other initiatives.

Example 3: Nomic Foundation

In 2021, Nomic Labs announced its transition to the Nomic Foundation, a new non-profit foundation dedicated to improving the Ethereum developer platform by building tools and infrastructure. The Ethereum Foundation provided an $8 million grant to this new organization and will also provide further grants to support its mission.

Analysis of the Ethereum Foundation's Financial Status

1. Ethereum Foundation Reserves

As of March 31, 2022, the Ethereum Foundation's reserves are approximately $1.6 billion, of which about $1.3 billion is in cryptocurrencies and $300 million in non-crypto investments and assets. The vast majority of the cryptocurrencies held by the Ethereum Foundation are ETH, accounting for 99.1%, representing 0.297% of the total ETH supply.

The Ethereum Foundation follows a conservative financial management policy to ensure that there are sufficient resources to fund the core goals of the Ethereum Foundation even during prolonged market downturns. From the portion of funds held by the Ethereum Foundation, it can be seen that they have a sufficient budget and are essentially unaffected by ETH price fluctuations.

To avoid over-reliance on ETH, the Ethereum Foundation has also increased its non-cryptocurrency reserves, providing a greater margin of safety to ensure continued funding support for non-core but high-leverage projects during market downturns. The reason for holding most of the funds in ETH is that the Ethereum Foundation believes in Ethereum's potential, and holding ETH also represents confidence in Ethereum's long-term development. (Note: The ETH held by the Ethereum Foundation includes 39,168 ETH committed to the client incentive program, which will be distributed to the relevant client development teams according to the previously disclosed schedule.)

Above: Distribution of Ethereum Foundation reserves (as of March 31, 2022)

2. Ethereum Foundation Expenditure in 2021

In 2021, the Ethereum Foundation's expenditures reached $48 million, of which approximately $20 million was for external expenditures, mainly including grants, delegated domain allocations, third-party funding, bounties, and sponsorships. The remaining funds were primarily used to support teams and projects within the Ethereum Foundation community, including:

1. Layer 1 R&D - $21.8 million;
2. Layer 2 R&D - $1.9 million;
3. Application of Zero Knowledge (ZK) R&D - $3.6 million;
4. Developer Platform - $5.9 million;
5. Community Development - $9.7 million;
6. Internal Operations and Support - $5.1 million.

1. Layer 1 R&D - $21.8 million

Layer 1 R&D work mainly includes: mainnet upgrades, Geth, internal security research, cryptographic R&D, economic modeling and mechanism design, long-term research to implement the Ethereum community roadmap, and R&D related to external execution and consensus layer clients. This category also includes grant work to external parties, such as network stress testing and external research in professional cryptography. Funding for the client incentive program is not included here; client teams will unlock funds according to the previously agreed schedule. As of March 31, 2022, a total of 39,168 ETH, valued at approximately $132.5 million, is in the client incentive program.

2. Layer 2 R&D - $1.9 million

Layer 2 R&D expenditures mainly involve teams contributing to Ethereum Layer 2 R&D and efforts to improve the Layer 2 ecosystem, including: educational resources, stress testing and monitoring tools, L2 SDK and other developer tools, security audits for external projects, etc.

3. Application of Zero Knowledge (ZK) R&D - $3.6 million

This expenditure mainly includes funding for teams working on projects such as MACI, ZKEVM, UniRep, and others, as well as other donations, such as ZK developer tools, ZK ritual design UX, ZK application proofs of concept, etc., and the grant given to the 0xPARC Foundation in October 2021.

4. Developer Platform - $5.9 million

This category includes all work related to improving Ethereum as a developer platform, such as supporting teams like Solidity, Remix, and the Python ecosystem, supporting Zokrates, and providing donations to third parties like Nomic Labs. (Note: The $8 million grant to the Nomic Foundation in 2022 is not included here.)

5. Community Development - $9.7 million

This category includes various work supporting different parts of the Ethereum community, such as support for the core protocol community (e.g., support for the staking community), Next Billion, Devcon, and interactions with Ethereum.org and other educational resources. It also includes many grants, such as grants for educational activities in specific regions like Honduras and Colombia, as well as the $1 million announced in November 2021 for advocacy organizations and the $1 million grant provided to the staking community in February 2021.

6. Internal Operations - $5.1 million

Internal operations mainly include general expenses supporting the operation of the Ethereum Foundation team, including: all costs related to internal and external legal, accounting, and financial services, as well as subscriptions and services across the organization, such as data services, operational tools, and technical infrastructure. Additionally, internal operations expenditures also include all costs related to personal investments in the funding management strategy, as well as salaries for all operational and administrative personnel.