Ethereum Foundation Report Reveals Internal Divisions,

Executive Summary

A report commissioned by the Ethereum Foundation from research group WE3, supported by Optimism and Espresso Systems, has revealed significant internal divisions within the Ethereum community. The "Mirror" project, based on over 60 interviews with core developers, researchers, investors, and community leaders, identifies eight distinct factions and highlights a lack of consensus on Ethereum's identity, leading some insiders to describe an "existential crisis." The report suggests that the growing number of individuals prioritizing immediate needs and short-term pragmatism is overshadowing the protocol's long-term vision, posing a critical challenge to Ethereum's future evolution and competitive standing.

The Report in Detail

The Ethereum Foundation initiated the "Mirror" project to gather perceptions of Ethereum from various stakeholders. The research, conducted by WE3 with support from Optimism and Espresso Systems, involved extensive interviews to understand how different audiences view Ethereum, identify challenges, and highlight strengths. The report categorizes stakeholders into archetypes, including Guardians defending the original ethos, Pioneers expanding into new frontiers, Translators disseminating ideas, and Challengers addressing perceived stagnation. Other groups include traders, institutions, and Web3 communities. Interviewees described Ethereum using metaphors ranging from "a world computer" and "humanity's coordination layer" to "a trillion-dollar casino" or "MySpace waiting to be displaced," underscoring the divergent perspectives on its core identity and purpose. This tension between idealistic vision and pragmatic realities forms the central theme of the 40-page study.

Internal Conflicts and Governance Challenges

The "Mirror" report explicitly states that Ethereum's greatest challenge lies in reconciling these divergent visions, addressing issues of governance, culture, and perception, rather than solely focusing on technical roadmaps. This internal strife is compounded by recent controversies surrounding the Ethereum Foundation (EF), including leadership shakeups, internal conflicts, and a significant DeFi investment. In 2024, the EF introduced a formal conflict of interest policy following criticism over two of its researchers, Justin Drake and Dankrad Feist, taking advisory roles with EigenFoundation. This raised concerns about insiders potentially profiting from their influence over protocol development, damaging Ethereum's credibility. Furthermore, the EF committed 50,000 ETH, approximately $165 million, to DeFi protocols to replenish its treasury, which had reportedly shrunk by 39% over the past three years. These internal struggles, leadership changes, and policy adjustments underscore the ongoing efforts to address governance and operational issues within the foundation itself.

Market Implications

The internal divisions and governance challenges identified in the "Mirror" report introduce uncertainty regarding Ethereum's long-term stability and development direction. Experts have questioned the network's performance, noting a steady decline in the value of ETH versus BTC over approximately three years. While the EIP1559 upgrade in 2021 aimed to make the network deflationary by burning transaction fees, its impact has been limited due to stagnated on-chain activity. This has led to a "layer 2 conundrum," where the proliferation of Layer 2 (L2) solutions captures the value of block space, contributing to "negative momentum" in the ETH price. The report implies that the fragmentation and inconsistent direction between Layer 1 (L1) and L2s are real issues that could hinder Ethereum's competitive standing. The ability of the Ethereum community and foundation to reconcile these divergent visions will be crucial for maintaining investor confidence and fostering future innovation.

Broader Context and Future Outlook

Despite anchoring the largest crypto ecosystem with billions locked in DeFi protocols and thousands of active developers, Ethereum faces increasing competition from new contenders like Solana. The "Mirror" report underscores that Ethereum's long-term positioning may depend less on throughput benchmarks and more on its community's ability to achieve consensus on its fundamental identity and strategic direction. The perceived "existential crisis" suggests that while Ethereum has achieved significant scale, its internal coherence and governance mechanisms are now under scrutiny. Resolving these internal conflicts, managing the L1/L2 dynamic, and clearly articulating a unified vision will be essential for Ethereum to maintain its dominance and relevance in the evolving Web3 landscape.