Original Title: Ethereum Foundation Treasury Policy

Original Author: Hsiao-Wei Wang

Original Translation: KarenZ, Foresight News

TL;DR

1. By 2025, the Ethereum Foundation (EF) will spend approximately 15% of the treasury funds, aiming to maintain a 2.5-year spending buffer in fiat terms, gradually reducing the spending ratio thereafter towards a sustainable level (possibly around 5% per year).

2. Cryptocurrency Asset Policy: Core considerations for the on-chain portfolio include but are not limited to: security and reliability, risk-adjusted returns, and Ethereum's deep-layer goals (supporting highly secure, decentralized, open-source cypherpunk applications).

· ETH Sales: EF will regularly assess the deviation of fiat-denominated assets in the treasury from the operational spending "runway" target and determine whether to sell ETH in the next three months and the amount to be sold.

· ETH Deployment: The current strategy includes solo staking and providing wETH to mature lending protocols, subject to ongoing reassessment. EF may also borrow stablecoins to seek higher on-chain returns.

3. Fiat Asset Policy: EF will allocate its fiat assets to the following areas: instant-liquidity assets (cash and other highly liquid fiat currency instruments), liability-matching reserves (time deposits, investment-grade bonds, and other low-risk instruments matching long-term liabilities), 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 a high-level treasury breakdown (e.g., percentage of fiat currency, idle ETH, and deployed ETH).

5. Cypherpunk Objective: Through research, advocacy, and fund allocation, EF will drive the establishment of a "Defipunk" evaluation framework based on cypherpunk principles, characterized by: security, open-source, financial sovereignty, prioritization of technical solutions over trust-based solutions, and active use of cryptographic tools to protect civil liberties and privacy, among others.

The translated text is as follows:

The mission of the Ethereum Foundation (EF) is to strengthen the Ethereum ecosystem and uphold its long-term goal: to ensure that "applications run exactly as programmed without downtime, censorship, fraud, or third-party interference." The EF Treasury aims to maintain the foundation's long-term autonomy, sustainability, and legitimacy. Fund allocation needs to strike a balance between pursuing returns above the benchmark and fulfilling the role of Ethereum ecosystem steward, with a particular focus on the DeFi space. This document outlines 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 to manage assets under risk management, duration, and liquidity considerations while always adhering to Ethereum's core principles. Focus on two variables:

A: Annual Operating Expenses (as a percentage of the current Treasury total)

B: Operating Buffer Years (the number of years the reserve operating funds can cover)

Where:

A × B: Determines the fiat-denominated (on-chain or off-chain) reserve target value, directly impacting the scale and frequency of ETH sales. (Treasury total - A × B): Defines the ETH reserve value, divided by the ETH price to obtain the ETH amount in the core holding.

The Board and management regularly reassess these two variables, weighing market dynamics and community feedback to ensure alignment between short-term operations and long-term strategy. Additional emphasis is placed on two points during assessment: (1) identifying key years requiring enhanced ecosystem participation; (2) maintaining a countercyclical stance—increased support during bear markets and moderate contraction during bull markets.

The current target values are A=15% (annual operating expenses as a percentage of the Treasury funds) and B=2.5 years (Buffer Years). This policy reflects the Ethereum Foundation's recognition that 2025-2026 is a critical period for Ethereum requiring concentrated resources to drive significant deliveries.

EF plans to long-term fulfill the role of stewardship but intends to gradually reduce the scope of responsibilities, aiming to linearly decrease annual operating expenses over the next five years, ultimately maintaining a 5% long-term benchmark (in line with charitable institution practices). This path and benchmark will be adjusted as the situation evolves.

Cryptocurrency Asset Policy

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

The core considerations for on-chain portfolios include but are not limited to:

· Security and Reliability: Prioritize battle-tested, immutable, audited permissionless protocols; support "positive sum game" participants in the Ethereum DeFi ecosystem; avoid exacerbating systemic risks; continuously assess project attack vectors and risks, such as smart contract, governance, custody (e.g., stablecoins), oracle risks, etc.

· Risk-Return Balance: Choose more liquid and conservative options instead of blindly pursuing high returns. Not only guard against the risk of capital loss but also against liquidity and overall portfolio flexibility risks. It may involve a slightly higher risk allocation, but it is limited in scale and managed separately. In any case, the goal is to hold a moderate proportion of the total value locked (TVL) of a single project.

· Ethereum Deep Target: Support highly secure, decentralized, open-source cypherpunk applications. An ideal protocol should minimize trust dependencies, have composability, and maximize privacy support.

We will frequently adjust fund allocation in response to market changes, risk diversification, or new revenue opportunities. Withdrawal actions should not be interpreted as a negative assessment.

ETH Sales

The EF will regularly calculate the variance between the fiat-denominated assets in the treasury and the operational expenditure buffer (‘B’) target and determine whether ETH will be sold in the next three months and the amount to be sold. These sales typically occur through fiat off-ramp channels or on-chain conversion to fiat assets. The EF will periodically calculate the deviation of the fiat reserve from the buffer target (B) and decide on the amount of ETH sales for the next three months (if any). Sales are usually completed through fiat channels or on-chain exchanges.

ETH Deployment

The current strategy includes solo staking and providing wETH to mature lending protocols. The core deployments will be continuously reassessed, but the goal is long-term development. The EF may also borrow stablecoins to seek higher on-chain returns. The EF's management team and advisors will review candidate protocols based on contract security, liquidity risk, decoupling risk, and other factors. As the DeFi ecosystem matures, the EF plans to incorporate part of its on-chain allocation (including rigorously audited pools and tokenized RWAs) into its fiat reserve.

Fiat-Denominated Asset Policy

The EF will allocate its fiat assets to the following areas:

· Immediate Liquidity Assets: Cash and other highly liquid fiat currency tools used to meet real-time operational needs;

· Liability Matching Reserves: Time deposits, investment-grade bonds, and other low-risk instruments matched to long-term liabilities;

· Tokenized RWAs: Following the same strategic objectives and risk guidelines as native crypto assets.

Transparency Policy

The EF collectively enforces treasury management accountability to the board of directors. To ensure transparency, accountability, and informed oversight, a structured internal reporting mechanism has been established. Reports are prepared and maintained by the finance team and distributed based on scope and sensitivity.

Quarterly Report

The finance team provides a quarterly report to the board and management, including:

Performance (absolute value and benchmarking)

All positions (opening and closing since the last report)

Summary of significant events (Operational: processes, infrastructure, security updates/incidents;

Ecosystem engagement: conferences, partnerships, etc.)

Annual Report

The EF Annual Report will include more treasury-related information, including a high-level treasury breakdown (e.g., fiat currency, idle ETH, and deployed ETH percentages).

Cypherpunk Objective

The EF (through research, advocacy, and fund allocation) will drive the establishment of a "Defipunk" assessment framework based on cypherpunk principles, characterized by:

· Security

· Open Source

· Financial Sovereignty

· Technical solutions over trust solutions (such as multi-sig, etc.)

· Actively leveraging cryptographic tools to protect civil liberties and privacy

· Privacy

Often overlooked but crucial in DeFi. Privacy can shield market participants from digital surveillance (e.g., frontrunning, sandwich attacks, liquidation sniping, targeted phishing, user profiling, and data-driven coercion) and physical threats.

The EF Should Actively Support Projects' Defipunk Transition

Ethereum is poised to attract orders-of-magnitude more capital, talent, and innovation vitality. However, growth often comes with path dependencies: standards adopted in the chaotic growth phase can solidify into legacy constraints, and designs prioritizing transparency may inadvertently lock in surveillance mechanisms. Existing systems often exert subtle pressures, narrowing the design space for novel DeFi primitives and constraining innovation focused on privacy. The Ethereum Foundation will resist these pressures.

Through research, advocacy, and strategic capital deployment, the EF can help nurture an Ethereum-native financial ecosystem, safeguarding self-sovereignty and maintaining an "open society in the digital age" at scale.

Translating this vision into tangible infrastructure requires effort. Today, building cypherpunk DeFi protocols faces numerous challenges: higher privacy-related gas costs, user experience friction, bootstrapping liquidity challenges, stricter auditing requirements linked to technical complexity and immutability, and the presence of privacy detractors. As a result, many of today's DeFi ecosystems rely on centralized elements: closed backdoors or fund recovery mechanisms, overreliance on multi-sig or MPC, widespread whitelisting, centralized and monitored user interfaces, and a pervasive lack of on-chain privacy—posing systemic vulnerabilities to the DeFi market and participants.

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

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

· Supporting emerging DeFi protocols in developing privacy features.

· Encouraging mature protocols to strengthen their Defipunk attributes through research collaborations, liquidity support, legality, and other resources.

· Driving the development of decentralized user interfaces (UI).

Starting with Defipunk from Within

Advocating for open-source, privacy, and other Defipunk goals is not limited to external to the EF, but also includes the EF's own potential internal operations. Applying Defipunk principles in the EF's own treasury management is a critical first step. More broadly, the EF can use secure software tools, establish a prudent operational structure to support all eligible contributors (including anonymous and pseudonymous participants), and improve its security and privacy practices in other ways. This will help the EF uphold its principles, and enhance its resilience, stability, and steadfastness.

Defipunk Standards

Below are specific standards for internal evaluation of protocols and user interfaces aimed at encouraging new project launches and improving existing projects. These standards will apply to all on-chain configurations in the EF's future. While some standards (such as permissionless access, self-custody, and free/libre open source software) are direct binary determinants of configuration, others are more nuanced. Currently, projects do not need to meet "ideal" status on every dimension. We seek credible progress and improvement roadmaps rather than perfection from day one. We are publicizing this framework to provide clarity for EF decision-making and achieve 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 users to maintain self-custody and defaults to this option?

· Free/Libre Open Source Software (FLOSS): Is the contract code free/libre open source software, adopting copyleft licenses (such as AGPL) or permissive licenses (such as MIT, Apache)? Providing only source-available code (such as BSL) does not meet the criteria.

Privacy:

· Transaction: Does it offer the option of shielding transaction source/destination/amount?

· State: Is 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 address)?

Open Development Process:

Is the development process reasonably transparent?

Is the code repository publicly accessible and actively maintained?

Are protocol changes clearly documented with version history?

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

Maximum Trustlessness of Core Logic:

· Immutability: Is the protocol's core logic not upgradeable or governed through highly decentralized, time-locked, and transparent processes? (Avoiding admin keys with broad powers.)

· Maximum Viable Cryptoeconomics: Does the protocol heavily rely on cryptographic guarantees and economic incentives, minimizing the use of legal wrappers (such as collateralization) or off-chain execution to only what is strictly necessary for core functionality?

· Oracle Reliance:

1. Is there an effort to minimize reliance on oracles and mitigate losses in case of oracle attacks?

2. When oracles are needed, are strong, decentralized, minimally governed, and manipulation-resistant oracles used?

Overall Security:

· Have the contracts been audited, and is there a process in place to track audit submissions' hashes and the final deployment hash, ideally including monitoring/alerting for differences?

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

Distributed User Interface:

Are there multiple independent UIs?

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

Can users interact directly with the contracts?

Long-Term Mission

The EF will exist in the long term, hence the need for a robust treasury long-term management policy. Historically, we have purely held ETH long-term, but we are now gradually shifting towards staking and DeFi to enhance financial sustainability and support a critical application category—an infrastructure that promises users secure access to civilization without permission.

Special thanks to the following Ethereum Foundation (EF) members for their valuable insights 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.

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