The Ethereum Foundation plans to integrate into the DeFi space using its Ether (ETH). The organization intends to lock away 50k ETH, which is approximately $165m, in Aave’s lending pool. This is a change from its previous strategy of directly selling ETH to support its activities.
Through DeFi, the Foundation plans to earn passive income while still holding onto its large ETH position. This funding will be secured through a three-of-five multi-signature wallet on Safe to enhance safety measures. As revealed by Ethereum Foundation’s Hsiao-Wei Wang in a recent post, the wallet has already completed a trial transaction with Aave.
The Foundation’s move reflects its confidence in Aave, a prominent DeFi platform with over $21 billion in collateralized loans. Despite its potential, the strategy carries risks, particularly the possibility of liquidation during significant market downturns. If liquidation occurs, the Foundation could lose its ETH collateral but retain stablecoins acquired through the loan.
Ethereum Foundation advances transparency and DeFi participation
Ethereum co-founder Vitalik Buterin announced organizational changes aimed at enhancing transparency and supporting application developers. The Foundation’s treasury, which currently holds 271,415 ETH valued at roughly $894 million, has declined significantly from its January 2020 peak of 617,000 ETH. The planned deposit represents 18.5% of the Foundation’s total ETH reserves, showing a move to capitalize on DeFi opportunities.
The community has embraced the decision, with Stani Kulechov, CEO of Aave, calling it a new era for the Ethereum Foundation. Till now, the Foundation has not had many DeFi dealings and mostly used Cow Protocol for token exchange. The upcoming deposit marks a move toward more engagement in Ethereum’s expanding DeFi market.
DeFi strategy aims to preserve ETH and minimize market impact
The Ethereum Foundation’s approach aligns with its commitment to long-term sustainability. In addition to the initial Aave deposit, it plans to use Safe wallets for storing a portion of its remaining reserves. The Foundation’s community has voiced support for preserving ETH holdings and generating funds through staking and DeFi strategies rather than direct sales.
The Etherium foundation’s plan is to sell ETH directly on the market which is a bearish signal in the market. This approach reduces the utilization of ETH in areas like the 4,666 ETH sold in 2019 for operational needs and funding needs. Still, using Aave is a risk, and one is vulnerable to liquidation when the market is volatile, and one may lose more money.
With ETH trading at about $3,300 as the Foundation makes the move, it shows the belief in the Ethereum ecosystem and the transition towards responsible financial management. This is set to be completed shortly at a 50,000 ETH deposit level that marries operational funding arrangements with stakeholder trust and asset protection.
