Interpretation: The story behind the Ethereum Foundation's massive sale of ETH

Is the Ethereum Foundation a "top-escape master"?

On August 23, the Federal Reserve released its expectations of interest rate cuts, and the cryptocurrency market ushered in a wave of upward trends. However, an on-chain operation followed - the Ethereum Foundation transferred 35,000 ETH to the Kraken exchange in the early morning of August 24.

The last time the Ethereum Foundation transferred a large amount of ETH to Kraken was on May 6 last year, when the Foundation transferred 15,000 ETH to the Kraken exchange. In the following 6 days, the price of ETH plummeted from $2,006 to $1,740, a drop of 13%.

Due to several records of large-scale shipments at relatively high points in the past, the Ethereum Foundation was nicknamed the "Master of Escape" by the market.

For example, the Foundation successfully completed two shipments at high points during the bull market in 2021:

(1) On May 17, 2021, the Ethereum Foundation sold 35,053 ETH at an average price of US$3,533. Subsequently, the crypto market experienced the "May 19 crash", and the price of the coin fell to around US$1,800, almost halving;

(2) On November 11, 2021, the Ethereum Foundation once again sold 20,000 ETH at an average price of US$4,677, and the market then began to fall. Both sales can be regarded as precise escapes from the top. However, from a longer time perspective, the Ethereum Foundation did not always sell at the highest point.

According to the data compiled by Wu Blockchain, the Ethereum Foundation also sold out on December 17, 2020 (100,000 ETH were sold at a unit price of US$657) and March 12, 2021 (28,000 ETH were sold at a unit price of US$1,790), both before the Ethereum price skyrocketed, and missed the subsequent huge gains.

From the transfer records of the Ethereum Foundation in the past year, it is not difficult to find that its operations are basically regular sales. It is not accurate to call it a "master of escaping the top" just because it sold at high prices a few times.

Why did the Ethereum Foundation sell ETH?

 Regarding the recent transfer of 35,000 ETH to exchanges, Aya Miyaguchi, executive director of the Ethereum Foundation, explained, "This is part of the Ethereum Foundation's fund management activities. The Ethereum Foundation has an annual budget of approximately $100 million, which mainly consists of grants and salaries. Some recipients can only accept legal tender. For a long time this year, the Ethereum Foundation was told not to conduct any financial activities because the supervision is complicated and plans cannot be shared in advance. However, this ETH transfer transaction does not mean a sale, and subsequent sales may be planned and phased out."

According to crypto analyst DefiIgnas, after transferring 35,000 ETH, the Ethereum Foundation currently still holds about 273,000 ETH, accounting for about 0.25% of the total supply of ETH. According to the latest report, the Ethereum Foundation allocated $30 million in the fourth quarter of 2023 and $8.9 million in the third quarter. The funds are mainly used for global conferences (such as the famous Devcon and Devconnect), online courses, innovative projects, etc.

In addition, the 2021 annual report shows that the Ethereum Foundation's total expenditure on internal expenses, external grants and rewards is $48 million, including $21 million for L1 R&D, $9.7 million for community development (including grants and education), and $5.1 million for internal operations (salaries, legal fees, etc.).

In addition, the sale of tokens by the Foundation is not an isolated case. For example, Polkadot has been controversial for its crazy spending.

Market impact of the Ethereum Foundation's sell-off and improvement directions

Since the listing of the Ethereum ETF on July 23, as of August 26, Grayscale's ETHE has had a cumulative net outflow of 799,000 ETH, with an average daily net outflow of 32,000 ETH (other ETH are all in a net inflow state, with an overall net outflow of approximately 141,900 ETH). In contrast, the 35,000 ETH sold by the Ethereum Foundation recently is not particularly large.

In fact, it is understandable that the Ethereum Foundation sold ETH, after all, the team's development and operation require financial support. Moreover, the 273,000 ETH held by the Foundation only accounts for 0.25% of the total supply. From the perspective of market capitalization, the Foundation's selling behavior has little direct impact on market liquidity, and the negative effects are more reflected in market sentiment, such as causing ETH holders to lose confidence and follow suit.

In addition, the Ethereum Foundation had previously announced a budget of $100 million, but the community's recent response highlights the growing demand for regular disclosure of financial details. For example, regularly publish detailed reports containing financial and basic updates, including team expenditures, the schedule for selling ETH (with full consideration of how to reduce the impact on the market), how and where funds are used, team size and allocation, etc., and provide the community with interfaces for announcements, activities, financial activities, etc. about the Ethereum Foundation. In this way, community sentiment will become more stable, and ETH holders will pay more attention to, understand and support the Ethereum Foundation to help promote the development of Ethereum.

Expect the ETH Foundation to bring more developers and users to Ethereum, the most famous smart contract blockchain, through continuous R&D public relations, community operations and market education.