The DeFi Punk Era Has Begun? A Quick Look at the Ethereum Foundation Treasury Policy

Original Author: Hsiao-Wei Wang

Original Translation: KarenZ, Foresight News

TL;DR

1. In 2025, the Ethereum Foundation (EF) will spend approximately 15% of its treasury funds, aiming to maintain a 2.5-year expenditure buffer in fiat currency, after which it will gradually reduce the expenditure ratio to a sustainable level (possibly 5% annually).

2. Crypto Asset Policy: The core considerations for the on-chain portfolio include, but are not limited to: security and reliability, balance of returns and risks, and Ethereum's deeper goals (supporting highly secure, decentralized, open-source cypherpunk applications).

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

• ETH Deployment: Current strategies include solo staking and providing wETH to mature lending protocols, which will be continuously reassessed. EF may also borrow stablecoins to seek higher on-chain yields.

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

4. Transparency Policy: The finance team will provide quarterly and annual reports. The annual report will include more treasury-related information, such as an overview of the main treasury configuration (percentage of fiat currency, idle ETH, and deployed ETH).

5. Cypherpunk Goals: Through research, advocacy, and fund allocation, EF will promote the establishment of a "Defipunk" assessment framework based on cypherpunk principles, characterized by: security, open-source, financial sovereignty, prioritizing technical solutions over trust solutions, and actively using cryptographic tools to protect civil liberties and privacy.

Original translation follows:

The Ethereum Foundation's (EF) mission is to consolidate the Ethereum ecosystem and adhere to its long-term goal: ensuring that "applications run exactly as programmed, avoiding the possibility of downtime, censorship, fraud, or third-party intervention." The EF Treasury aims to maintain the foundation's long-term autonomy, sustainability, and legitimacy. Fund allocation needs to balance pursuing returns beyond benchmarks and fulfilling the role of Ethereum ecosystem guardians, with a particular focus on the DeFi field.

This document clarifies the policy framework for EF Treasury management and elaborates on key metrics and considerations.

Macro Policy

To achieve its goals, EF will develop and regularly optimize asset-liability management policies and advanced fund allocation strategies, managing assets under risk management, term, and liquidity considerations while always adhering to Ethereum's core principles.

Focusing on two variables:

A: Annual operational expenses (percentage of current treasury total)

B: Operational buffer years (number of years operational funds in reserve can cover)

Where:

A × B: Determines the target value of (off-chain or on-chain) reserves in fiat currency, directly affecting the scale and frequency of ETH sales.

(Treasury total - A × B): Defines the ETH reserve value, which, divided by the ETH price, gives the number of ETH in the core position.

The board and management regularly reassess these two variables, weighing market dynamics and community opinions to ensure short-term operations align with long-term strategy. Additional focus during assessment includes: (1) identifying key years that need enhanced ecosystem participation; (2) maintaining a countercyclical stance—increasing support during bear markets, moderately contracting during bull markets.

The current target values are A = 15% (annual operational expenses as 15% of treasury funds) and B = 2.5 years (buffer years). This policy reflects the Ethereum Foundation's view that 2025-2026 are critical years for Ethereum, requiring concentrated resources to advance important deliverables.

EF plans to long-term fulfill the steward role but intends to gradually narrow its responsibilities, planning to linearly reduce annual operational expenses over the next five years, ultimately maintaining a 5% long-term benchmark (in line with donation-type institution practices). This path and benchmark will be adjusted according to circumstances.

Privacy has been long overlooked in DeFi, yet it is crucial. Privacy can protect market participants from digital surveillance (such as front-running, sandwich attacks, liquidation sniping, targeted phishing, user profiling, and data-based coercion) and physical threats.

EF Should Actively Support Defipunk Transformation of Projects

Ethereum is poised to attract exponential growth in capital, talent, and innovation. However, growth often has path dependency: standards adopted during chaotic rapid growth periods can solidify into legacy constraints, and designs prioritizing transparency may by default lock in surveillance mechanisms. Existing systems often impose subtle pressures that narrow the design space for new DeFi primitives and limit privacy-focused innovation. The Ethereum Foundation will resist these pressures.

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

Translating this vision into actual infrastructure requires effort. Today, building Cypherpunk DeFi protocols faces numerous challenges: higher privacy-related gas fees, user experience friction, difficulty in launching liquidity, more stringent audit requirements related to technical complexity and immutability, and the presence of privacy opponents. As a result, many current DeFi ecosystems rely on centralized elements: backdoor closure mechanisms or fund withdrawal functions, over-reliance on multi-signature or multi-party computation (MPC), widespread use of whitelists, centralized and monitored user interfaces, and a general lack of on-chain privacy - all of which expose DeFi markets and participants to systemic vulnerabilities.

Privacy especially needs to be treated correctly. As the Cypherpunk's Manifesto points out: "Privacy is necessary for an open society in the electronic age." Privacy has inherent network effects but has received little attention so far. This suggests that strong early institutional support from entities like EF has unique value in shifting the landscape towards a more privacy-focused DeFi.

EF has the ability to help guide DeFi towards these goals. For example:

• Support emerging DeFi protocols in developing privacy features.

• Encourage mature protocols to strengthen Defipunk attributes through research collaboration, liquidity support, legitimacy, and other resources.

• Promote R&D of decentralized user interfaces (UI).

Defipunk Starts from Within

Advocating for open-source, privacy, and other Defipunk goals is not limited to external EF efforts, but also includes potential internal operations of EF itself. Applying Defipunk principles in EF's own Treasury management is a critical first step. More broadly, EF can use secure software tools, establish prudent operational structures to support all qualified contributors (including anonymous and pseudonymous participants), and improve its security and privacy practices in other ways. This will help EF stay true to its principles and enhance its strength, stability, and resolve.

Defipunk Standards

The following are specific standards for internal evaluation of protocols and user interfaces, aimed at encouraging new project launches and improvements to existing projects. These standards will apply to all future on-chain configurations of EF. While some standards (such as permissionless access, self-custody, and free and open-source software) are direct binary configuration factors, others are more complex. Currently, projects do not need to be in an "ideal" state in every dimension. We seek credible progress and improvement roadmaps, not perfection from day one. We are making this framework public to provide clarity for EF decision-making and reach consensus on these dimensions, while allowing the community to consider, adjust, or apply these standards.

Permissionless Access: Can anyone interact with the core smart contracts without KYC or whitelisting?

Self-Custody: Does the protocol allow and default to users maintaining self-custody?

Free and Open-Source Software (FLOSS): Is the contract code free and open-source software, using a copyleft license (such as AGPL) or permissive license (such as MIT, Apache)? Merely providing source code (such as BSL) does not meet the criteria.

Privacy:

• Transactions: Are there options to shield transaction sources/destinations/amounts?

• State: Are user/personal data and/or position information shielded on-chain?

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

Open Development Process:

• Is the development process reasonably transparent?

• Are code repositories publicly accessible and actively maintained?

• Are protocol changes clearly documented with version history?

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

Maximally Trustless Core Logic:

• Immutability: Is the protocol's basic logic non-upgradable, or governed through highly decentralized, time-locked, and transparent processes? (Avoid administrator keys with broad powers.)

• Maximal Viable Cryptoeconomics: Does the protocol maximize reliance on cryptographic guarantees and economic incentives, and minimize the use of legal wrappers (such as collateral guarantees) or off-chain enforcement to the lowest level necessary for core functionality?

• Oracle Dependency:

• Is oracle dependency minimized, and potential losses in case of oracle attacks maximized?

• When oracles are necessary, are robust, decentralized, minimally governed, and manipulation-resistant oracles used?

Overall Security:

• Have contracts been audited, with processes to track audit submission hashes against final deployment hashes, ideally including monitoring/alerts for differential changes?

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

Distributed User Interface:

• Are there multiple independent UIs?

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

• Can users interact directly with the contract?

Long-Term Mission

EF will exist long-term, so it needs a robust Treasury long-term management policy. We have long simply held ETH, but are now gradually moving towards staking and DeFi, both to enhance financial sustainability and to support a key application category - one that promises permissionless secure access to foundational civilizational infrastructure for users.

Thanks to 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.

Thanks to kpk, Steakhouse Financial, and pcaversaccio for their profound insights and final review of this document.