The Emergence of the ‘Second Foundation’

On Wednesday morning, a mysterious X profile emerged calling itself the “Second Foundation,” an apparent reference to a splinter organization from the Ethereum Foundation…

While not much is known about the @2nd_foundation_ entity, which only follows the first and to date only official Ethereum Foundation account on X, one thing seems certain: it was not created by Lido founder Konstantin Lomashuk…

Lomashuk confirmed that he is not involved with the project, according to messages The Block has reviewed. “So that the news is fake. I didn’t create any foundations,” Lomashuk said. “It is just a twitter account, 2nd foundation, not real 2nd foundation yet.”

Although the Second Foundation appears to be a lark, its creation and the subsequent conversation around it are significant. The situation has struck a nerve within the Ethereum community, which is currently splintering amid a period of intense self-criticism and apparent strife within the Ethereum Foundation.

“People explicitly challenging the original EF is a real demonstration of lack of faith by the community,” Columbia Business School associate professor Austin Campbell told The Block in a direct message.

“Its basically a mutiny,” said a prominent DeFi founder, who asked not to be named.

Ding, dong, ditch

A wide-ranging debate over the past and future of Ethereum is taking place on social media platforms like X and Discord — and privately among Etheruem’s coterie of influential decision makers — with many once adamant ETH defenders declaring they’ve lost hope on the protocol.

“The sentiment from what I can tell is that ppl are fed up with EF inaction/lack of leadership vision,” Wazz, a pseudonymous crypto trader and frequently critical commentator, told The Block in a direct message.

Perhaps most notably, Ethereum co-creator and Consensys CEO Joseph Lubin called upon Danny Ryan, a former EF researcher who led the network’s complicated switch to proof-of-stake, and Ethereum France President Jerome de Tychey to co-lead the foundation and exert “energy, talent, outside the box thinking” in Ethereum’s marketing and output.

This would be to replace current EF Executive Direct Aya Miyaguchi, who has drawn particular ire from many in the Ethereum community due to her perceived dovishness.

“The problem here is that Ethereum leaders like Aya lack skin in the game,” internet theorist Roko Mijic told The Block.

It’s a point echoed by many and exacerbated by the rising competition from alternative blockchains as well as the ETH token’s relative market underperformance. For instance, the ETH/BTC price ratio, which tracks the relative value of Ethereum to Bitcoin, is at its lowest point since 2021.

“I think most crypto natives, myself included, are frustrated with [the EF’s] lack of competitiveness. feels like they got complacent being #2, and now Solana is clearly threatening that,” another pseudonymous ETH support, Gleb, told The Block.

Underperformance

One of the most consistent complaints centers around the Ethereum Foundation’s arguably untenable burn rate. The organization, which currently holds approximately $800 million worth of ETH, spent around $240 million combined in 2022 and 2023…

“There is no real clarity on how the EF works, what its governance model is, how decisions are made, who works for the EF, what they are paid, how the money is spend in any detail,” Bob Summerwill, an early Ethereum supporter who is now executive director for the ETC Cooperative, told The Block.

Moreover, for years, the EF has been criticized for “dumping” ETH to pay salaries. To be sure, roughly three-fourths of its annual spending goes to Layer 1 R&D and funding “new institutions” and “community development.”

This isn’t to suggest that everyone disagrees with the EF’s direction. Blockchain lead at EY, Paul Brody, said that while he doesn’t agree with all its decisions, “at the big picture level, they have successfully delivered.”

Wartime footing

These critiques and suggestions are not going unheard.

On Sunday, Ethereum co-creator and spiritual leader Vitalik Buterin said on X the EF had been planning changes to the foundation for the past several months to make the organization more transparent and better able to execute.

However, for many, this is too little, too late — a problem only compounded by later posts suggesting Buterin remained in support of Miyaguchi, who Buterin named executive director in 2018.

“you can’t reform a kingdom while a king sits on the throne,” prominent NFT influencer DCinvestor said on X.

“Vitalik is the leader, but he does not want to be the leader,” Summerwill wrote The Block.

Second look

All of this circles back to the idea of the “Second Foundation,” a type of organization that could help take some of the organizational responsibilities away from the Ethereum Foundation.

On Tuesday, in response to Buterin saying that the “EF is only one part of the world computer,” Uniswap founder Hayden Adams pitched the idea…

As ever, views of the situation are complicated, especially considering it’s not yet clear who is behind the project or whether it forebears Buterin’s coming, promised changes to the structure of the Ethereum Foundation.

One Crypto Twitter mainstay, Aleph, noted that, at best, “without doxed founders and a plan to get money to cover funding it seems unlikely to do anything.” And at worst? “Grift.”

‘Loud and clear’

Overall while the EF could be better, they’re being scapegoated for issues beyond their control. “From my perspective Ethereum is doing better than ever,” MakerDAO’s Rune Christensen said. “Like it doesn’t matter what they do — they can’t fuck it up even if they tried.”