Galaxy: Ethereum Foundation faces criticism again; where are the governance challenges?

Source: Galaxy; Compiled by: Golden Finance On October 17th, veteran Ethereum researcher Dankrad Feist announced that he would be joining Tempo, a payments-focused Layer-1 chain being developed by Paradigm. Dankrad has been working full-time at the Ethereum Foundation since 2019 (six years can feel like a lifetime in the cryptocurrency world). This spring, he played a significant role in Ethereum's scalability debate and contributed to PeerDAS (EIP-7594), a key component of Ethereum's plan to achieve scalability via Layer-2. Feist's departure has triggered a new wave of reflection and criticism against the Ethereum Foundation and its leadership, venture capital (VC) investors in the Ethereum ecosystem, and the Ethereum community as a whole. Three key speakers focused on these key points: Péter Szilágyi (former head of the Geth client), Sandeep Nailwal (founder and CEO of the Polygon Foundation), and Joseph Lubin (co-founder of Ethereum and founder of Consensys). Szilágyi's comments were particularly significant because he released a private letter he sent to the leadership of the Ethereum Foundation in May 2024. The letter, sharply worded, scathingly criticized the leadership of the Ethereum Foundation, its treatment of employees, and the "cabal" manipulating the direction of Ethereum. Szilágyi began by detailing the yawning pay gap between Ethereum Foundation contributors and what he called the ecosystem's "high rollers." He revealed that in his first six years working full-time on Geth (Ethereum's most commonly used execution client), his total pre-tax income was $625,000, with no bonuses, even as Ethereum's market capitalization grew from zero to $450 billion. He argues that the Foundation has long underpaid its most loyal contributors, fostering perverse incentives that force technically talented but underpaid developers to seek outside consulting or advisory positions for financial stability. In his words, "The Foundation has set itself up to be trapped by necessitating financial dependence on outside groups." He also criticized the Foundation's internal culture, arguing there was a significant discrepancy between its public image and private reality. The Foundation officially portrayed him as a respected leader and a voice for client diversity efforts. He claimed that privately, he was seen as a nuisance whose influence was tolerated only when convenient. He claimed that Feist had privately described Szilagyi's position as merely "a recognized leadership role," a description the developer found apt: publicly praised, privately scorned. He called himself a "useful fool," used to demonstrate the Foundation's openness to internal dissent while privately being marginalized. Every time he speaks out against the "power players," he says, his credibility suffers, and every act of conscience becomes a reputational loss. Beyond compensation and governance, Szilágyi claims that Ethereum has quietly developed a deep-seated social hierarchy. He claims that success in the ecosystem depends less on individual ability and more on proximity to a small network of roughly "five to ten prominent researchers and investors" and the "one to three venture funds" that support them. Szilágyi says this group, whose members are often personally close to Ethereum founder Vitalik Buterin, effectively acts as gatekeepers, deciding which projects receive legitimacy, visibility, or funding. He argues that "Ethereum is decentralized, but Vitalik has absolute and indirect control over it," as his endorsement (direct or indirect) still determines which projects thrive. In Szilágyi's view, Ethereum's culture, once celebrated for its permissionless innovation, has devolved into a "ruling elite" of friends, researchers, and investors whose alignment with Vitalik determines the project's success. Taking all of these arguments together, Szilágyi warns that the Foundation's structural flaws have made Ethereum a fertile ground for protocol capture. He argues that by denying meaningful compensation to internal talent and tolerating advisory disputes between Ethereum Foundation researchers and venture capital projects, the organization effectively cedes influence to external financial actors. What began as an open-source, idealistic movement has, in his words, become a place where "we set out to build something great, but once [enough] money is in hand, we're not hesitant to abandon all our principles." To him, this dynamic represents a moral decay for Ethereum, where its original mission of open participation and decentralization is being replaced by financial and political incentives manipulated by a small group of insiders. Szilágyi concluded, "So, where does all this lead us? I really don't know. Can Ethereum be fixed? No, it really can't." Polygon's Nailwal echoed Szilágyi's frustration, saying that reading the letter made him "question my own loyalty to Ethereum." He expressed deep respect for Vitalik but also lamented the Ethereum Foundation's years of neglect and the hostility of some community members who "terroristly attack projects like Polygon" despite its contributions. Nailwal believes that Ethereum's culture has become exclusivist by refusing to recognize Polygon as a legitimate Layer-2 platform and grant it market-recognized "Ethereum beta" status, while Polygon's ecosystem remains anchored to Ethereum. He said this dynamic has become so distorted that people are beginning to question his fiduciary responsibility to Polygon, claiming that if Polygon had branded itself as a Layer-1 platform, its value could be "two to five times higher." Despite this, he said he would "make one last effort" to urge the community to reflect on why so many major contributors are now questioning their loyalty to Ethereum.

Six hours after Nailwal's post, Vitalik made another post thanking the Polygon CEO for his contributions to the ecosystem. He also acknowledged the importance of Polygon's creation of Polymarket, stating, in Vitalik's words, "Polymarket is perhaps the most successful example of something that's 'not just boring financial applications,' but something that actually succeeds and provides value." Joe Lubin, founder of ConsenSys and one of Ethereum's original architects, offered a mild defense of the project and its direction. He acknowledged that "the goal of Paradigm and many other venture capital firms is to extract as much value as possible from Ethereum and the broader ecosystem while creating value for the ecosystem to maximize their own returns," and that "Paradigm is particularly good at this," but he also considered this behavior "natural and inevitable." Lubin viewed venture capital participation as a necessary bridge for global capital to enter decentralized markets and expressed hope that future on-chain investment platforms would eventually replace them. While acknowledging that he would have preferred Feist and other researchers to remain at Ethereum, he characterized their departure as part of a healthy development cycle rather than a crisis. His comments contrasted sharply with those of Szilágyi and Nailwal, emphasizing long-term inevitability and pragmatic acceptance rather than moral outrage. Feist is one of several high-profile departures from the Ethereum Foundation and its ecosystem over the past few years. Notably, Danny Ryan left the Foundation to found Etherealize, Barnabé Monnot left the Ethereum Foundation to found Defipunk Labs, and Max Resnick left the ecosystem to join Solana. Feist's move is particularly sensitive given his significant contributions to Danksharding and his move to a project related to "enterprise blockchain." Galaxy's Take: On the surface, the discussion surrounding Feist's departure from the Ethereum Foundation resembles standard crypto Twitter drama. However, deeper revelations reveal the organizational structure of the open source software (OSS) development community and the impact that private complaints once discussed in the community forum have on Ethereum and the Ethereum Foundation. In his note, Szilágyi emphasized that, in his view, Ethereum protocol contributors are not being fairly compensated. Compensation for open-source software developers has been a hotly debated topic for decades. Open-source software itself is inherently contradictory. It is founded on philosophical ideals of freedom, transparency, and the creation of a public good. These ideals often clash with the economic realities of sustaining software maintainers. This tension persists today, particularly in blockchain ecosystems that position themselves as decentralized, open protocols. Therefore, in these cases, the question isn't just how much developers should be paid, but also what work should be incentivized and who should determine this distribution. Ethereum's structural ambiguity exacerbates this challenge. Due to its large and ambitious goals (e.g., building a "world computer") and unclear leadership direction, establishing clear priorities and compensation standards is difficult. Without a clear strategic direction, allocation decisions may default to informal factors such as social capital, proximity to influential figures, or access to external funding. When the protocol's priorities remain open to interpretation, the same is true for compensation, making it even more difficult to distinguish between legitimate disagreements and arbitrary decisions. The result is a system in which individual contributors must meet unclear expectations, leadership has uncertain authority to set goals and allocate resources, and the community has no clear basis for evaluating either. Compensation complaints are not just about paying employees fairly. They are about whether an organization can operate coherently when its mission and governance structure are unclear. While the tone of these conversations has been somewhat heated, their emergence in a public forum marks a profound development. Complaints that were once held behind closed doors have now become public debate. This is an uneasy but necessary move for the community to better establish the accountability and maturity of Ethereum's leadership.