The DeFiPunk Era Begins? A quick read of the Ethereum Foundation's treasury policy

Original author: Hsiao-Wei Wang

Original compilation: KarenZ, Foresight News

TL; DR

1. In 2025, the Ethereum Foundation (EF) will spend about 15% of its treasury funds, with the goal of maintaining a 2.5-year spending buffer denominated in fiat currency, after which it will gradually reduce the proportion of spending to eventually move towards a sustainable level (possibly 5% per year).

2. Crypto asset policy: The core considerations of the on-chain portfolio include, but are not limited to: security and reliability, balance between returns and risks, and the deep goals of Ethereum (supporting highly secure, decentralised, and open-source cypherpunk applications).

• ETH Sales: EF will periodically calculate the deviation of fiat-denominated assets in the treasury from the operating expenditure "runway" target, and determine whether and how much ETH to sell in the next three months.

• ETH deployment: Current strategies, including solo staking and the provision of wETH to established lending protocols, are constantly being re-evaluated. EF may also borrow stablecoins in search of higher on-chain yields.

3. Fiat-Denominated Asset Policy: EF will allocate its fiat assets to the following areas: immediate liquid assets (cash and other highly liquid fiat currency instruments), liability-matched reserves (term deposits, investment-grade bonds, and other low-risk instruments matched with long-term debt), and tokenised RWA.

4. Transparency policy: The financial team provides quarterly reports and annual reports. The annual report will contain more treasury-related information, including an overview of major treasury allocations (such as fiat currency, idle ETH, and percentage of deployed ETH).

5. Cypherpunk Goals: Through research, advocacy, and funding allocation, EF will promote the establishment of a "Defipunk" evaluation framework based on cypherpunk principles, which will feature security, open source, financial sovereignty, technical solutions over trust solutions, and the active use of cryptography tools to protect civil liberties and privacy.

The original text is compiled as follows:

The Ethereum Foundation's (EF) mission is to strengthen the Ethereum ecosystem and stay true to its long-term goal: to ensure that "applications run exactly as programmed, avoiding the possibility of downtime, censorship, fraud, or third-party interference." The EF Treasury is designed to preserve the long-term autonomy, sustainability, and legitimacy of the Foundation. Funding needs to be balanced between the pursuit of out-of-benchmark returns and fulfilling the role of guardian of the Ethereum ecosystem, with a particular focus on the DeFi space.

This document clarifies the policy framework for EF's treasury management and sets out key metrics and considerations.

Macro policy

To achieve its goals, EF will develop and regularly refine its asset-liability management policies and advanced funding allocation strategies to manage assets with risk management, maturity and liquidity considerations, while remaining consistent with Ethereum's core principles.

Focus on two variables:

A: Annual operating expenses (as a percentage of the current treasury)

B: Operating buffer period (the number of years that can be covered by the reserve of operating funds)

Thereinto:

A × B: Decide on the target value of the reserve (off-chain or on-chain) denominated in fiat currency, which directly affects the size and frequency of ETH sales.

(Total Treasury - A × B): Defines the value of ETH reserves, divided by the ETH price to get the amount of ETH held by the core holdings.

The Board and management regularly re-evaluate these two variables, weighing market dynamics against community input to ensure that short-term operations are aligned with long-term strategies. Two additional points were paid to the assessment: (1) the identification of key years in which ecological participation needs to be strengthened; (2) Maintain a countercyclical stance - the bear market increases support, and the bull market contracts moderately.

The current target values are A= 15% (15% of annual operating expenditures in the treasury) and B= 2.5 years (buffer period). This policy reflects the Ethereum Foundation's determination that 2025-2026 is a critical period for Ethereum, and that resources need to be focused on advancing important deliveries.

EF plans to fulfil its steward," role for a long time, but plans to gradually narrow its responsibilities and intend to reduce annual operating expenses linearly over the next five years, eventually maintaining a long-term benchmark of 5% (in line with donor practice). The path and benchmark will be adjusted as the situation changes.

Crypto Asset Policy

EF will manage treasury assets in a manner consistent with Ethereum's fundamental principles, pursuing reasonable returns.

Core considerations for on-chain portfolios include, but are not limited to:

• Security & Reliability: Prioritize proven, tamper-proof, audited, no-license agreements; Support positive "positive sum game" participants in the Ethereum DeFi ecosystem; avoid exacerbating systemic risks; Continuously evaluate the project's attack vectors and risks, such as smart contracts, governance, custodial (e.g., stablecoins), oracle risks, etc.

• Balance of returns and risks: Choose conservative options with high liquidity, rather than blindly chasing high returns. It is necessary to protect against not only the risk of capital loss, but also the risk of liquidity and overall portfolio flexibility. Slightly riskier configurations may be made, but are limited in scale and managed separately. In any case, the goal is a modest percentage of the total value locked (TVL) of a single project.

• Ethereum's deep goal: to support highly secure, decentralised, open-source Cypherpunk applications. The ideal protocol should minimise trust dependencies, be composable, and maximise privacy.

We will adjust our capital allocation frequently in response to market changes, risk diversification or new income opportunities. Actions should not be interpreted as negative.

ETH for sale

EF will periodically calculate the deviation of fiat-denominated assets in the treasury from the OPEX Buffer ("B") target and determine whether and how much ETH to sell over the next three months. These sales are typically made through fiat currency exit channels or on-chain exchanging for fiat currency assets.

EF will periodically calculate the deviation of the fiat reserves from the buffer target (B) and determine the amount of ETH to be sold in the next three months, if any. The sale is usually done through a fiat channel or on-chain exchange.

ETH Deployment

Current strategies include solo staking and providing wETH to established lending protocols. Core deployments are constantly being re-evaluated, but the goal is long-term. EF may also borrow stablecoins in search of higher on-chain yields. EF's management and advisers will review candidate agreements based on contract security, liquidity risk, depegging risk, and other factors. As the DeFi ecosystem matures, EF plans to incorporate a portion of its on-chain allocations, including heavily vetted pools and tokenised RWAs, into its fiat reserves.

Fiat-denominated asset policy

EF will allocate its fiat assets to the following areas:

• Instant Liquid Assets: Cash and other highly liquid fiat currency instruments to meet real-time operational needs;

• Liability Matching Reserves: Term deposits, investment-grade bonds, and other low-risk instruments matched to long-term debt;

• Tokenized RWAs: Follow the same strategic objectives and risk guidelines as native crypto assets.

Transparency Policy

EF Co-Executive Directors are accountable to the Board of Directors for treasury management.

To ensure transparency, accountability and informed oversight, a structured internal reporting mechanism has been put in place. Reports are prepared and maintained by the finance team and distributed according to scope and sensitivity.

Quarterly reports

The finance team provides quarterly reports to the Board and management, including:

• Performance (absolute and benchmarking)

• All positions (open and closed since the last report)

• Summary of major incidents (operations: processes, infrastructure, security updates/incidents; Ecosystem Engagement: Conferences, Partnerships, etc.)

annual report

The EF Annual Report will contain more treasury-related information, including an overview of major treasury allocations (such as fiat currency, idle ETH, and percentage of deployed ETH).

Cypherpunk target

EF (through research, advocacy and funding) will drive the development of a "Defipunk" assessment framework based on cypherpunk principles, with features including:

• security

• open source

• Financial sovereignty

• Technical solutions take precedence over trust solutions (e.g., multi-signature, etc.)

• Actively use cryptography tools to protect civil liberties

• privacy

Privacy has long been neglected in DeFi, but it's crucial. Privacy protects market participants from digital surveillance (e.g., front-running, sandwich attacks, liquidation sniping, targeted phishing, profiling, and data-based coercion) and physical threats.

EF should actively support the project's Defipunk transformation

Ethereum is expected to attract exponentially growing capital, talent, and innovation dynamism. However, growth is often path-dependent: standards adopted during chaotic periods of rapid growth are solidified into legacy constraints, while transparency-focused designs may default to lock-in monitoring mechanisms. Existing systems tend to exert subtle pressures to shrink the design space for new DeFi primitives and limit privacy-focused innovation. The Ethereum Foundation will defend itself against these pressures.

Through research, advocacy, and strategic capital allocation, EF can help foster an Ethereum-native financial ecosystem that secures self-sovereignty and sustains an "open society in the electronic age" at scale.

Translating this vision into actual infrastructure requires effort. Today, building a cypherpunk DeFi protocol faces a number of challenges: higher privacy-related gas fees, user experience friction, difficulty launching liquidity, the need for stricter auditing related to technical complexity and immutability, and the presence of privacy opponents. As a result, many DeFi ecosystems today rely on centralised elements: backdoor closure mechanisms or fund withdrawal capabilities, over-reliance on multisig or multi-party computation (MPC), widespread use of whitelisting, centralised and monitored user interfaces, and a pervasive lack of on-chain privacy – all of which expose the DeFi market and participants to systemic vulnerabilities.

Privacy, in particular, needs to be treated correctly. As Cypherpunk's Manifesto states, "Privacy must be part of the social contract if it is universally available." Privacy has an inherent network effect, but has received little attention so far. This suggests that strong early-stage institutional support from entities such as EF is uniquely valuable in shifting the balance towards a more privacy-focused DeFi landscape.

EF has the power to help steer DeFi towards these goals. For example:

• Supporting emerging DeFi protocols in developing privacy features.

• Mature protocols are encouraged to strengthen Defipunk attributes through research collaboration, liquidity support, legitimacy, and other resources.

• Promote the development of decentralised user interfaces (UIs).

Defipunk starts with itself

Advocating for open source, privacy, and other Defipunk goals is not limited to external EF, but also includes possible internal operations within EF itself. Applying Defipunk principles to EF's own treasury management was a critical first step. More broadly, EF may use security software tools, establish prudent operational structures to support all qualified contributors (including anonymous and pseudonymous contributors), and otherwise improve its security and privacy practices. This will help EF uphold its principles and strengthen its strength, stability, and firmness.

Defipunk standard

The following are specific criteria for internal evaluation of protocols and user interfaces designed to encourage new project initiation and improvement of existing projects. These standards will apply to all future on-chain configurations of EF. While some standards, such as permissionless access, self-hosting, and free and open source software, are direct binary determinants of configuration, others are more complex. Currently, a project does not need to be "ideal" in every dimension. We seek credible roadmaps for progress and improvement, not perfection on day one. We make this framework public in order to provide clarity and consensus on these dimensions of EF decision-making, while allowing the community to consider, adjust, or apply these standards.

Permissionless access: Can anyone interact with the core smart contract without KYC or whitelisting?

Self-hosting: Does the protocol allow users to remain self-hosted and make it the default option?

Free and Open Source Software (FLOSS): Is the contract code free and open source software, under a copyleft license (e.g., AGPL) or a permissive license (e.g., MIT, Apache)? Providing only source code, such as BSL, is not eligible.

Privacy:

• Transactions: Is there an option to shield the source/destination/amount of the transaction?

• Status: Is the user/personal data and/or position information masked on-chain?

• Data: Does the protocol (and its typical UI) avoid collecting unnecessary user data (such as user agents) and personal data (such as IP addresses)?

Open development process:

• Is the development process reasonable and transparent?

• Is the code repository publicly accessible and actively maintained?

• Is there a clear record and version history of protocol changes?

• Is the decision-making process for upgrades, parameters, and roadmaps visible?

The core logic of maximum trustlessness:

• Immutability: Is the underlying logic of the protocol non-upgradeable or governed by a highly decentralised, time-locked, and transparent process? (Avoid admin keys with broad powers.) )

• Maximum-viable cryptoeconomics: Does the protocol rely maximum on cryptographic guarantees and economic incentives, and reduce the use of legal wrappers (e.g., collateral guarantees) or off-chain execution to the minimum required for core functionality?

• Oracle dependencies:

• Do you minimise your reliance on oracles and minimise losses if oracles are attacked?

• Where oracles are needed, are they strong, decentralised, governance-minimised, and manipulation-resistant?

Overall Safety:

• Is the contract audited and has a process in place to track the submitted hash vs. the last deployed hash, ideally including monitoring/alerting when discrepancies change?

• Are contract properties formally verified or at least bytecode verified on a blockchain explorer?

Distributed User Interface:

• Are there multiple independent UIs?

• Is the main UI open source and hosted in a decentralised manner?

• Can users interact directly with the contract?

Long-term mission

EF is here to stay, so a robust long-term treasury management policy is needed. We have long held ETH alone, but are now moving to staking and DeFi, both to enhance financial sustainability and to support a key application category that is providing users with permissionless and secure access to the promise of foundational civilised infrastructure.

We would like to thank the following Ethereum Foundation (EF) members for their valuable comments and feedback on the draft document: Bastian Aue, Vitalik Buterin, Bogdan Popa, Tomasz Stańczak, Fredrik Svantes, Yoav Weiss, Dankrad Feist, Tim Beiko, Nicolas Consigny, Nixo, Alex Stokes, Ladislaus and Joseph Schweitzer.

We would like to thank kpk, Steakhouse Financial, and pcaversaccio for their insights and final review of this document.