“Power, Pay and Protocols: An Inside Look at Ethereum’s Governance Crisis and What It Means for New Crypto Projects”

Main Points :

• A former core developer of Ethereum (ETH), Péter Szilágyi (who led the “Geth” client) has published a letter that harshly criticises the Ethereum Foundation (EF) for centralised governance, pay disparities and elite influence.
• The governance concerns go beyond pay: accusations of a small “inner circle” around co-founder Vitalik Buterin steering which projects succeed and which fail, eroding the narrative of Ethereum’s open, decentralised ethos.
• Additional ecosystem voices—such as Sandeep Nailwal (co-founder of Polygon) and other developers—have echoed frustration over limited support from EF and perceived bias.
• From a broader viewpoint, Ethereum is facing headwinds: scalability debates (Layer 2, roll-ups), increasing competition (e.g., Solana), and signs of governance fatigue or dissatisfaction.
• For crypto investors and practitioners seeking new opportunities, this governance turbulence signals both risk (in backing projects tied to Ethereum’s core hierarchy) and opportunity (in alternatives or Layer-2 initiatives that emphasise open governance, fresh incentive models).
• Key takeaway: if you’re evaluating new crypto projects, protocol-governance, developer incentives, and ecosystem openness are just as important as the tokenomics and technology — and Ethereum’s present moment is a useful case study.

“From Inside the Machine: What Szilágyi’s Letter Reveals”

Péter Szilágyi, who worked at the Ethereum Foundation from around 2015 (shortly after the network launched) through to his departure, published a letter (initially addressed to the Foundation in May 2024) that recently resurfaced publicly. He details several major grievances:

• He claims that while Ethereum’s market cap rose from essentially zero to around US$ 45 billion during his first six years (many sources cite up to US$̃450 billion as of later years) his total pre-tax compensation was only US$ 625,000, with no incentives or equity.
• He accuses the Foundation of opaque reward practices, poor long-term alignment of incentives and, ultimately, a governance structure that enables power to accumulate in a small elite group.
• Regarding centralisation, Szilágyi writes that although he respects Vitalik Buterin, Buterin’s decisions about research direction and funding, even indirectly, “very highly determine which projects succeed or fail” in the Ethereum ecosystem. He states that a key success factor now is getting Buterin (or someone in his inner circle of “5-10 people”) to “approve” your project.
• He warns that these conditions raise risks of “protocol capture” (i.e., the protocol being steered by insiders and entrepreneurs cosy with the elite, rather than by broad community innovation) and represent a drift from the altruistic decentralised ideal. He observes that many core developers may seek other sources of income or leave the ecosystem because compensation is misaligned.

From a practical, investor-oriented viewpoint: Szilágyi’s claims highlight the importance of digging beyond the white paper. When a protocol’s core development team complains about compensation and governance, that may hint at deeper friction with long-term implications for ecosystem momentum.

“Ecosystem Push-back: Polygon, Layer-2 and the Governance Shift”

The critique doesn’t stop at the Ethereum Foundation. For example, Sandeep Nailwal (co-founder and CEO of Polygon) publicly expressed his own frustration: he argued that the Foundation did not officially recognise Polygon as a Layer-2 of Ethereum, and thereby withheld “official security guarantees” or implied endorsement, despite Polygon’s heavy development in ZK-EVM or Layer-2 space. He asserted the community needs to “look at itself in the mirror” if major contributors feel disillusioned.

In response, Vitalik publicly commended Polygon’s contributions to Ethereum’s scalability and ZK-EVM work. He affirmed that Polygon has been “immensely valuable” in the Ethereum ecosystem, and personally thanked Nailwal.

From the investor/developer side, this is meaningful: if one of the leading Layer-2 ecosystems feels under-recognised by the Ethereum core, there may be increasing momentum for alternative chains or roll-ups that emphasise independence, governance transparency, or novel token-incentive structures. In other words: for new crypto projects, a “friendly” relationship with Ethereum Core may no longer be the only path — independence and clarity of governance could become a differentiator.

“Governance, Compensation and Competitive Risks — The Bigger Picture”

While the specific letter and disputes are dramatic, they fit into a broader narrative of Ethereum facing internal and external pressures in 2025:

• Governance concerns: As reported, Ethereum’s governance (especially through the Foundation) is receiving criticism for centralisation and opaque decision processes.
• Competitive pressure: Rivals like Solana are seen gaining ground in throughput, lower fees, and faster execution, which increased concerns around Ethereum’s speed and cost-structure.
• Scaling debates: The debate between positioning Ethereum as a settlement layer vs a “world computer” continues. Some argue the network needs much higher throughput sooner.
• Compensation / Developer ecosystem attrition: If core devs believe they’re underpaid/unrecognised, that may hamper ongoing infrastructure development, which is critical given the challenge of staying competitive.
• Treasury and fund flows: EF’s financial moves (e.g., swapping ETH for stablecoins to fund growth) raise questions about transparency and strategy.

For someone looking at new crypto opportunities, this suggests a layered risk landscape: backing a token built on Ethereum isn’t just about tech or market share; there’s ecosystem politics, governance risk, and incentive alignment behind the scenes.

“Implications for New Crypto Projects, Investors and Practitioners”

Given this landscape, here are key take-aways for your audience (those hunting new crypto assets, exploring blockchain use-cases, or building in Web3):

1. Governance matters: When evaluating a protocol (or token), ask: Who really controls decision-making? Is compensation transparent? Does the team feel aligned? Ethereum’s case shows even a large ecosystem can face internal dissent.
2. Ecosystem incentive alignment: The health of an ecosystem depends on how well contributors (core devs, infrastructure maintainers) are incentivised and how open the system is to new innovators. A token may succeed technically, but if contributor incentives are misaligned, risk builds.
3. Surface vs depth: Projects that appear “open” may harbour elite control or opaque reward structures. Dig into treasury disclosures, grant-programs, and community sentiment.
4. Alternative paths: Given friction inside major incumbents (like Ethereum), alternatives (Layer 2s, other chains, specialised roll-ups) may offer interesting opportunities — especially those emphasising strong governance, dev-friendliness, transparent tokenomics.
5. Technology + governance combo: Even best-in-class technology won’t guarantee success if governance fails or contributors leave. So when you assess a project for investment or building-on, evaluate both dimensions.
6. For practical blockchain use-cases: If you’re a builder seeking to launch a new application, the broader ecosystem matters: How easy is it to access grants? How open is the dev ecosystem? Are you locked into elite approval? The Ethereum example suggests that dev friction can slow ecosystem dynamism.

“What’s Next for Ethereum? Can It Reform?”

Despite the turmoil, Ethereum isn’t necessarily doomed — but the next chapters are crucial.

• The Foundation has already announced structural changes: e.g., a new leadership structure for its privacy initiative (appointing Igor Barinov to coordinate “Privacy @ EF” and Andy Guzman to lead applied cryptography) in October 2025.
• The community debate is now public and intense — with increased scrutiny perhaps driving reform.
• For Ethereum to retain its leadership position, it must align: (a) scalability (Layer 2 roll-ups, ZK-EVM acceleration) (b) governance transparency (compensation, decision-making) and (c) ecosystem openness (ensuring newer projects are not blocked by old-boys networks).
• If it fails, then alternative ecosystems may accelerate, and new high-growth tokens may emerge outside the Ethereum “inner circle”. For investors and builders, this is a potential inflection point.

“Summary & Final Thoughts”

In summary: the letter from Peter Szilágyi and the surrounding ecosystem criticism serve as a canary in the mine for one of the largest blockchain networks. They highlight that even widely-adopted protocols can suffer from governance, compensation and centralisation risk. For your audience — those seeking new crypto assets, blockchain use-cases or dev-opportunities — the lesson is clear: go beyond the token’s surface story. Evaluate governance, incentives, community openness and ecosystem health. The technology may be powerful, but if the culture or incentive structure is faulty, the protocol’s long-term trajectory may wobble.

For Ethereum, the next 12–18 months will matter. Will EF meaningfully reform and maintain its ecosystem lead? Or will its internal friction open the door wider for competitors? For investors, builders and ecosystem-shapers, this is both risk and opportunity.

In short: techno-innovation is necessary, but governance is the hidden capacitor powering sustainable growth. As you explore the next wave of crypto assets and blockchain infrastructures, ask: who controls the protocol, how are contributors rewarded, and how open is the ecosystem for new entrants? Ethereum’s moment illustrates that ignoring these questions can cost more than just lost alpha.