TLDR
- Ethereum Foundation granted $32.65M in Q1 2025 across 32 initiatives focused on Layer 2 scaling, ZKPs, and education
- Community-building and educational programs received the largest share, including events in Africa and Middle East
- Layer 2 solutions like Base are earning millions in transaction fees while paying only a fraction back to Ethereum
- Some in the community are questioning if Layer 2s are “extractive” rather than beneficial to Ethereum’s ecosystem
- Potential solutions include “based rollups” where transaction ordering happens on mainnet, or changes to fee structures
The Ethereum Foundation has allocated $32.65 million in grants during the first quarter of 2025, supporting 32 initiatives across multiple domains. This funding demonstrates Ethereum’s commitment to advancing blockchain technology while addressing scalability challenges.
Community and education projects received the largest portion of the funding. These initiatives support events like ETHPrague, ETHiopia (the first Ethereum event in Ethiopia), and regional developer bootcamps.
Projects such as the Arabic Blockchain Developer Bootcamp aim to create localized materials and organize meetups to involve developers in underrepresented regions. This approach reflects Ethereum’s goal of building a global decentralized community.
Zero-knowledge proofs (ZKPs) and cryptographic research claimed the second-largest portion of the funding. Ethereum’s focus here highlights the importance of ZKPs for scaling without compromising privacy or security.
Supported projects are exploring post-quantum cryptography, building general-purpose ZK tooling, and enhancing SNARK/STARK efficiency. These technologies are crucial for scaling Ethereum’s Layer 2 solutions.
The Layer 2 Fee Debate
While Layer 2 solutions have helped reduce congestion on the Ethereum mainnet and lower gas fees, concerns are emerging about revenue distribution.
Some community members argue that Ethereum is not being fairly compensated for the security it provides.
Layer 2 platforms like Base, Optimism, and Arbitrum are collecting substantial transaction ordering fees (sequencing fees) while paying relatively little back to the Ethereum mainnet. This has sparked debate about whether Layer 2s are beneficial or “extractive” to the Ethereum ecosystem.
According to CoinMetrics researcher Tanay Ved, Base has earned approximately $98 million in revenues from user-transaction fees while paying only about $4.9 million to Ethereum, resulting in an estimated profit of $94 million since the Dencun upgrade in March 2024.
Base representatives counter that they have paid Ethereum more than $20 million in settlement fees since launch. They argue that Base makes blockchain access more accessible with fast and cheap transactions, helping grow the Ethereum ecosystem by onboarding more users and builders.
However, financial statements show that Base’s overall fees are typically about 10 times the amount paid to Ethereum for settling trades. In April 2024, Base collected $3.7 million in fees but delivered only $305,000 to Ethereum—roughly 8% of total fees.
Some researchers suggest the imbalance may correct itself as Ethereum implements upgrades like Pectra and Fusaka, which will increase blob throughput and potentially drive higher total blob fees to the mainnet.
The recent Pectra upgrade, which went live on May 7, raises the blob target from three to six per block, creating room for increased fee capture as Layer 2 activity scales.
Potential solutions to the fee imbalance include “based rollups,” where transaction ordering occurs on the mainnet rather than on Layer 2s. Proponents argue this would provide better security by addressing the centralization risks of current Layer 2 sequencers.
Several based-rollup Layer 2s have launched in the past year, with Taiko Alethia being the first and largest. While its $148.3 million in total value secured ranks far behind Base’s $12.06 billion, its performance is comparable to established platforms like Arbitrum One.
Another proposed solution is implementing a tax on Layer 2s, though this could have unintended consequences. It might make Layer 2s less competitive and risk activity moving to competing Layer 1 blockchains outside the Ethereum ecosystem.
The Ethereum Foundation appears to be prioritizing long-term growth over short-term revenue. However, proposals like EIP-7762, which raises the minimum blob base fee to speed up price discovery during demand surges, could drive more fee income to Ethereum mainnet.
Some community members believe social pressure may be needed to encourage leading centralized Layer 2s to voluntarily share more of their sequencing fees with Ethereum.
Despite these challenges, many remain optimistic about Ethereum’s future. The blockchain continues to lead in DeFi assets, stablecoins, and institutional adoption, positioning it well to serve as the infrastructure for a “network of networks” in blockchain’s future.
