The Ethereum Foundation has made a significant shift in its financial strategy by investing 45,000 $ETH, worth approximately $120 million, into three major decentralised finance (DeFi) platforms: Aave, Spark, and Compound.
This decision marks a turning point in how the Foundation manages its resources, as it moves away from its past practice of selling $ETH to fund operations.
Instead, by depositing these funds into DeFi protocols, the Foundation is helping to strengthen the ecosystem and reduce selling pressure on Ethereum’s price.
Many in the cryptocurrency community have welcomed the move, seeing it as a positive step towards Ethereum’s long-term growth and stability.
A strategic shift towards DeFi
On 13 February, the Ethereum Foundation transferred 45,000 $ETH from its multisignature wallet to the three DeFi platforms.
Aave received the largest share, with 30,800 $ETH, while Spark received 10,000 $ETH and Compound was allocated 4,200 $ETH.
At the time of these transfers, Ethereum was trading at approximately $2,600 per $ETH, bringing the total value of the investment to over $120 million.
This move addresses a long-standing concern within the Ethereum community. In the past, the Ethereum Foundation had been criticised for funding its operations by selling $ETH, a practice that some believed negatively affected Ethereum’s price stability.
By choosing to invest $ETH in DeFi protocols rather than selling it, the Foundation is not only providing liquidity to these platforms but also demonstrating confidence in decentralised finance as a critical part of the Ethereum ecosystem.
Why does this investment matter?
This decision is the largest DeFi investment ever made by the Ethereum Foundation. The CEO and founder of Aave, Stani Kulechov, highlighted the significance of this move, calling it a major step forward for the DeFi ecosystem. He expressed confidence in the future of decentralised finance, stating, “DeFi will win”.
Kulechov believes that adding liquidity to Aave Prime and Aave Core will further establish Aave as a pillar of decentralised finance, making lending and borrowing on the platform more efficient.
The Ethereum Foundation’s decision to deposit such a large amount into Aave rather than liquidating its $ETH shows that it is taking steps to strengthen the DeFi sector rather than disrupt it with large market sales.
Other voices in the crypto community have also praised this move. Mark Jeffrey, a well-known crypto commentator and podcaster, described it as a “smart” move, highlighting the fact that lending protocols like Aave play a central role in the DeFi industry.
He believes that this investment not only helps DeFi grow but also reduces the Foundation’s need to sell $ETH, which in turn stabilises the Ethereum market.
At the same time, some have questioned why it took the Ethereum Foundation so long to take this step. The co-founder of HyperLend, 0xNessus, a DeFi lending protocol, expressed surprise at the timing, stating, “All we had to do was push them a little”.
This comment suggests that community pressure may have influenced the Foundation’s decision to engage more actively with DeFi applications.
Many in the crypto space have been urging the Foundation to support Ethereum’s growing ecosystem rather than sell $ETH for operational expenses.
Criticism of past ETH sales
The Ethereum Foundation’s previous approach of selling $ETH to fund its operations had been met with criticism from several industry figures.
Some believed that these sales created downward pressure on Ethereum’s price, affecting not just the Foundation but also regular $ETH holders and the wider market.
In January, Eric Conner, co-author of Ethereum’s EIP-1559 proposal, accused the Foundation of primarily “dumping ETH” onto the market.
He argued that this strategy was counterproductive and that the Foundation should explore alternative ways to fund its operations without destabilising the Ethereum ecosystem.
Similarly, the host of The Daily Gwei, Anthony Sassano, suggested that instead of selling $ETH outright, the Foundation could use DeFi platforms like Aave to stake $ETH and borrow stablecoins.
By doing so, the Foundation could access liquidity while retaining its $ETH holdings, preventing unnecessary market disruptions.
With this recent $120 million $ETH deployment, it seems that the Foundation has acknowledged these concerns and is now taking a more sustainable approach to managing its financial resources.
Rather than selling $ETH and putting downward pressure on its price, the Foundation is leveraging DeFi to make its holdings more productive.
What’s next for the Foundation?
This move is unlikely to be a one-time event. The Ethereum Foundation has hinted at further engagement with DeFi, staking, and other funding opportunities in the near future.
A recent statement from the Foundation suggested that this is part of a broader shift in strategy. The organisation has also started interacting more with the Ethereum community, seeking input on how to manage its reserves effectively.
This increased transparency and openness may help strengthen trust in the Foundation’s long-term vision. If the Foundation continues to invest its $ETH holdings into DeFi platforms, it could pave the way for a more stable and sustainable Ethereum ecosystem.
Additionally, the impact of this decision extends beyond the Ethereum Foundation itself. Other large $ETH holders, such as crypto investment funds and institutions, may take inspiration from this approach and choose to engage with DeFi rather than simply selling their $ETH holdings.
This could lead to increased liquidity in DeFi protocols, further strengthening the Ethereum network. The Ethereum Foundation’s move also comes at a time when Ethereum’s market dynamics are shifting.
With Ethereum exchange-traded funds (ETFs) gaining popularity and discussions around $ETH staking within ETFs progressing, institutional interest in Ethereum’s DeFi ecosystem is growing.
If more institutions and major $ETH holders follow the Foundation’s example and allocate funds into DeFi instead of selling them, this could significantly reduce selling pressure on Ethereum’s price.
It could also drive further adoption of lending and staking platforms, increasing demand for DeFi-based financial services.
The Ethereum Foundation’s decision to invest $120 million worth of $ETH into DeFi protocols is a significant development for both Ethereum and the broader crypto ecosystem.
Instead of selling $ETH, the Foundation is now using decentralised finance to generate returns and support the ecosystem.
By supporting Aave, Spark, and Compound, the Foundation is not only providing liquidity but also signalling a long-term commitment to Ethereum’s decentralised finance sector.
This could lead to greater adoption of DeFi by institutions and investors, setting a precedent for how large crypto organisations manage their funds in the future.
