[Xangle Digest]

Written by Jehn
Translated by Rhea 

Ethereum Foundation Report (2021): From Their Philosophy and Way of Work to Financial Summary

Summary 

• The Ethereum Foundation has disclosed their 2021 Annual Report, which includes their financial summary. 
• They stated that this report is published to share what the Ethereum Foundation is all about and the philosophy they hold, and their activities and efforts based on them. 
• The outlook for Ethereum Foundation’s short-to-mid-term financial stability is very good, as estimated based on their current assets and spending from the previous year. 
• As the Ethereum Foundation poses itself as a new challenge to the very format of conventional companies or organizations, there is a need to keep our eyes on how the foundation will operate after it has spent all the volume initially distributed or after they have achieved their goals. 

On April 18, the Ethereum Foundation disclosed their 2021 annual report, which includes their financial status. This report allowed an opportunity to check the kind of philosophy the Ethereum Foundation is or should be working under as a “foundation” or “community” in this crypto asset market that sets them apart from other conventional companies or non-profit organizations since the foundation has been setting an exemplary practice of decentralized operation among the major blockchains. 

This annual report also helped confirm the following points: 

1) Mid-term Financial Stability Forecast to Be Very High

: Based on the size of assets the Ethereum Foundation currently holds and their annual spending last year, the EF demonstrates a solid financial standing, with no problem meeting their mid-term goals. As of March 31, 2022, the EF’s treasury was approximately $1.6 billion, with non-crypto assets scaled up to around 18.8% of their investment mix and further securing slightly more financial strength. However, their asset mix still leans heavily toward virtual assets, which calls for a more conservative valuation involving about a 30% discount on the asset size, given their volatility. Even if aggressive spending is assumed for this year, the expected runway exceeds 5.6 years, which illustrates that the foundation has a very sound financial stability. Meanwhile, the EF’s strong trust in ETH is evident in the fact that they are holding about 80.5% of their total assets in Ethereum. 

2) Carefully Preparing to Transition into PoS Model 

: The largest chunk of Ethereum Foundation’s research and development spending went into Layer 1 related R&D (at 45.4% with about $21.8M), illustrating their commitment to expanding their ecosystem as well as continuing maintenance for their chain currently built on the Proof-of-Work model. It also confirmed that the EF is pushing forward with fostering technologies like ZK, which is directly required for Ethereum’s transition to Proof-of-Stake. 

3) Their Unwavering Belief in Decentralization 

: The report also presented the Ethereum Foundation’s philosophy and way of work, proving their unwavering belief in decentralization once more. Their foremost priority is the growth of the network as a whole rather than the EF monopolizing all the attention and influence that comes with the growth. Their way of work is also aligned with the blockchain ideology, showing what an exemplary DAO looks like. With collaboration with different third parties, fully leveraging the strength of an open-source platform, the Ethereum Foundation is expected to show very high scalability compared to other traditional forms of company. 

The following is the full report released by the Ethereum Foundation. Please refer to the link below for the original document. 

Original document: Ethereum Foundation Report (April 2022)

1. What is the Ethereum Foundation?

The Ethereum Foundation (EF) is a non-profit that supports the Ethereum ecosystem. The EF is hard to categorize. The EF is 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. Every day we learn more about what kind of organization the EF needs to be, to support Ethereum’s long term growth. One key thing to understand is that the EF is more like a community of teams than a traditional organization. 

All of the teams that are part of the EF community share a common vision and passion for helping Ethereum make a positive contribution to humanity. But the EF contains many different teams that can be quite independent from each other. Teams have their own processes, goals, budgets, and products. The EF is a community of teams that are highly aligned, but loosely coupled: 

• Some teams are focused on the development and maintenance of important pieces of the Ethereum technology stack. 
• Some teams explore the technical frontiers of what Ethereum and its ecosystem can become. 
• Some are focused outward, on the ecosystem itself, trying to understand it and looking for challenges and opportunities. 
• And others are focused internally, ensuring that the EF's resources are allocated well, that we are working on the right problems, and that the teams and groups that make up our community have the support they need to achieve their own goals. 

2. What is the EF’s Philosophy?

 1) Long term thinking

: The EF community’s impact will be measured in decades and centuries - not quarters and fiscal years. Ethereum is a protocol for human coordination, and if it continues to be a useful protocol, its lifespan will stretch long into the future. This means that the EF naturally has a long-term mindset. We care for not only the interests of the community as it exists today, but for the community that will exist in the future. 

 2) Subtraction 

: The EF resists the natural tendency of organizations to grow and accumulate power. Instead of capturing opportunities for ourselves, we distribute those opportunities to the community. Instead of pulling everything in-house, we push our resources out to teams across the ecosystem. We don’t compete with the ecosystem — we are thrilled when other organizations create value because that means Ethereum is becoming more decentralized and sustainable. 

This is one reason we are relatively quiet. If we did not follow the philosophy of subtraction, the EF would be a natural schelling-point for attention, prestige, and influence as Ethereum grows and becomes more widely used around the world. The story of the Ethereum ecosystem should not become the story of the Ethereum Foundation. 

As a result, we try to work with the community as much as possible. Instead of asking “how do we solve this problem?” we ask “how can the Ethereum community solve this problem, and how can we help?” 

 3) Stewardship of values 

: Ethereum has a soul. The values of our community have helped make Ethereum what it is. This includes values like open-source, decentralization, open-access, privacy, and many more. This isn’t an exhaustive list, and the EF doesn’t get to decide what the Ethereum community’s values are. But we care about nurturing the ones we think are most important. 

We often speak of the EF as a kind of gardener, nurturing Ethereum’s “natural ecosystem.” Like a gardener, we do not try to control or force the direction of natural processes - our role is to nurture and support. And when we walk through the landscape, we are careful about where we step. 

3. How does the EF support the ecosystem?

Over the years we have experimented with many different ways of supporting the Ethereum ecosystem. This has led to a “layered” model where we involve many different groups in decision making about where to allocate resources.

 1) The First Layer: EF teams 

The EF is a community of teams. Those teams each make their own contributions to the ecosystem, and are very independent and prefer to operate as a distinct team. The EF supports these teams with funding and operational support. Sometimes we create new teams in response to new needs from the ecosystem. The following are some of the teams in the Ethereum Foundation: 

2) The Second Layer: Grants  

In 2021, the Ethereum Foundation allocated $19.6M in grant funding. The EF runs an open grants process called the Ecosystem Support Program (ESP). The ESP team receives applications, processes them and solicits feedback from experts, approves grants, and then manages grand relationships. The ESP team also looks for other non-financial ways to support teams who apply for grants. The EF also has so-called “proactive” grants where EF teams identify opportunities to grow or improve the Ethereum ecosystem, and initiate a conversation about financial support with community members. In many cases, the EF coordinates grants or co-fund activities with others in the Ethereum ecosystem. 

3) The Third Layer: Delegated Domain Allocators 

The EF works with domain experts to help guide allocations. This means identifying expert partners outside of the EF, and giving them the power to identify opportunities and make grants within a certain domain. We have worked with delegated allocators in domains like zero-knowledge tech, developer experience improvements, staking infrastructure, and developer onboarding. 

4) The Fourth Layer: Third Party Funding 

As the Ethereum ecosystem has matured, the EF has begun to redistribute greater and greater amounts of funding into independent third-party organizations. The EF gives large amounts of funding to aligned organizations who share a commitment to supporting the ecosystem and funding public goods. The EF does this by working with organizations like 0xPARC, Nomic Foundation, ETHGlobal, and by using on-chain applications like CLRs / Quadratic Funding to put power in the hands of the community. 

4. Ethereum Foundation’s Financial Summary 

As of March 31, 2022, the EF’s treasury was approximately $1.6 billion, split between $1.3 billion in crypto*, and $300 million in non-crypto investments and assets. The vast majority (99.1%) of our crypto holdings are held in ETH. This ETH represents 0.297% of the total ETH supply on March 31, 2022. 

The EF follows a conservative treasury management policy that ensures we have sufficient resources to fund the EF’s core objectives even in the case of a multi-year market downturn. We also increased our non-crypto savings in response to rising ETH prices, which provides a greater safety margin for our core budget and would enable us to continue funding non-core but high leverage projects through a market downturn. 

The Ethereum Foundation chooses to hold the remainder of our treasury in ETH. The EF believes in Ethereum’s potential, and our ETH holdings represent that long-term perspective.