Ethereum Foundation at Risk of Liquidation as Market Slumps

The Ethereum Foundation (EF) recently disclosed that its treasury was valued at $970.2 million as of October 31, 2024—a sharp decline from $1.6 billion in March 2022. This 39% drop can be attributed to two main factors:

• Annual expenditures of around $120 million.
• In the last two years, the price of ETH has fallen by 22%.

It places great dependence on cryptocurrency holdings, which constitute as high as 81.3% of the foundation’s treasury, mainly in ETH. Though it shows a sound belief in Ethereum’s long-term valuation, it also increases vulnerability against downturns in the market. Since ETH’s price is extremely volatile, downtime for longer periods may produce negative repercussions on the foundation’s overall financial health when it comes to operational needs. 

Concerns Over Liquidation Strategy

The foundation’s recent transactions have caused controversy regarding its management of liquidity. In December 2024, the EF exchanged 100 ETH for 374,334 DAI, in addition to the 4,266 ETH that it had already sold throughout the year. The aggregate revenue realized from the sales was approximately $12.21 million at an average of $2,796 per ETH.

These sell-offs imply that the foundation is managing its treasury aggressively to meet expenses. But if ETH prices keep declining, then the foundation may have to dump more ETH at deteriorating prices, undermining its overall financial health. A sharp decline in prices below major support levels may restrict the EF from being able to maintain its existing funding commitments.

Potential Debt and Liquidation Risks

While the Ethereum Foundation has not disclosed any debts, its treasury policy raises concerns over liquidity issues. It invested 50,000 ETH (approximately $165.3 million) in Aave, a decentralized finance (DeFi) lending protocol, in January 2025.

Though this decision was made to create some yield and for the betterment of performance in treasury, it invites additional risks. If the price of ETH falls far below its liquidation level, it could trigger automatic asset sales by the foundation. This would not only shrink the treasury value but also send shockwaves through the market. 

Risk Management and Strategic Adjustments

To safeguard its economic well-being, the Ethereum Foundation has taken various strategic steps:

• Asset Diversification: The EF has been selling parts of its ETH holdings for stablecoins such as DAI to minimize exposure to the price volatility of ETH.
• Strategic Liquidations: The foundation is timing the sale of its ETHs thoughtfully to control cash flow without causing further downward pressure on the market.
• DeFi Yield Strategies: By participating in lending platforms, the foundation hopes to earn extra income—although this also exposes it to forced liquidation during market declines.

Even with these measures, the foundation is still highly dependent on ETH. If market conditions further deteriorate, the EF could be forced to adopt more drastic measures, such as selling more assets or taking in outside funds.

Outlook and Future Challenges

The financial situation of the Ethereum Foundation is inextricably linked to the performance of ETH. While its treasury management strategy can thus far keep operations afloat, sustained volatility in the markets might endanger the foundation’s long-term vision. If the price of ETH does not stabilize, the foundation might be forced to make difficult decisions, such as restructuring its treasury or going to outside sources for financial assistance.

There will be a keen ear turned to how the Ethereum Foundation meets these issues. Its decisions are likely to sketch out the form of resilience and sturdiness of the bigger, grander Ethereum ecosystem.