Ethereum Foundation Strategic Adjustments: Treasury Policy, Key Metrics, and Responsibility Changes
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Ethereum Foundation Strategic Adjustments: Treasury Policy, Key Metrics, and Responsibility Changes
EF's asset management will holistically consider risk, duration, and liquidity, while ensuring alignment with Ethereum's core principles.
Navigating Web3 tides with focused insightsAuthor: Hsiao-Wei Wang
Translation: TechFlow
Special thanks to the following EF members for their valuable feedback and input on drafts of this 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 also thank kpk, Steakhouse Financial, and pcaversaccio for providing insightful contributions and final review of this document.
The Ethereum Foundation (EF) is committed to strengthening the Ethereum ecosystem while upholding its non-negotiable core mission: supporting “applications that run exactly as programmed without downtime, censorship, fraud, or third-party interference.” The EF Treasury aims to preserve the Foundation’s long-term independence, sustainability, and credibility. In capital allocation, EF seeks returns above benchmark levels while focusing on expanding its role as a steward of the Ethereum ecosystem—particularly in supporting decentralized finance (DeFi).
This document outlines policies and guidance for EF Treasury management and discusses key metrics and considerations.
1. Macro Policy
To achieve its goals, EF will establish and regularly optimize asset-liability management policies and high-level funding allocation strategies. EF’s asset management will holistically consider risk, duration, and liquidity, ensuring alignment with Ethereum’s core principles.
Our management strategy centers on two variables:
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A: Annual operating expenditure (expressed as a percentage of total treasury)
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B: Operational runway (measured in years of reserves supporting operations)
The formulas are as follows:
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A × B: Determines the target reserve size denominated in fiat (on-chain or off-chain), which directly influences the scale and pace of ETH sales.
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(TotalTreasury - A × B): Defines the value of ETH reserves; dividing this by the ETH price yields the amount of ETH held in core holdings.
EF’s Board and leadership team will periodically reassess these two variables, incorporating market dynamics and community input to ensure short-term operations align with long-term strategy. Each assessment will also be guided by two overarching perspectives:
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Identifying key years requiring intensified ecosystem engagement;
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Maintaining a counter-cyclical stance—increasing support during market downturns and moderating it during bull markets.
The current targets are: A = 15% of treasury allocated to annual operating expenses; B = 2.5 years of operational runway.
This policy reflects our belief that 2025–2026 may become pivotal years for Ethereum’s development, necessitating concentrated resource allocation toward critical initiatives.
EF expects to maintain a stewardship role over the long term, though its scope of responsibility will gradually narrow. Over the next five years, we plan to linearly reduce annual operating expenditures to eventually reach a long-term baseline of 5%, a level common among endowed organizations. This trajectory and baseline will be reviewed and optimized based on real-world conditions.
2. Crypto Asset Policy
EF will strive to generate prudent returns on treasury assets while adhering to Ethereum’s core principles.
Key considerations for the on-chain portfolio include, but are not limited to:
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Security and Reliability: Prioritize protocols that are rigorously tested, tamper-proof, audited, and permissionless. Support positive-sum participants within Ethereum’s DeFi ecosystem. Avoid increasing systemic risk to Ethereum as a whole, while continuously evaluating potential attack vectors and risks—including smart contract, governance, custody (e.g., stablecoins), and oracle risks.
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Prudent Returns and Risk Management: Favor conservative, liquid options over aggressive yield chasing. Emphasize not only capital preservation but also liquidity and portfolio flexibility. For higher-risk investments, limit exposure and use segregated accounts. Under no circumstances will EF allow significant concentration in any single project’s total value locked (TVL).
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Ethereum’s Foundational Goals: Support applications that are highly secure, decentralized, open-source, and aligned with cypherpunk ideals. Cypherpunk-style DeFi should be permissionless—without walled gardens. Ideal protocols minimize trust assumptions, enable composability, and place strong emphasis on privacy.
EF will frequently rebalance allocations across protocols in response to changing market conditions, diversification needs, or emerging yield opportunities. Withdrawals from protocols should be understood as strategic adjustments, not endorsements or condemnations of specific projects.
2.1 Ether Sale Strategy
Throughout the year, EF will regularly calculate deviations between its fiat-denominated assets and the operational buffer target (“B”), then determine whether and how much Ether to sell over the following three months. These sales will typically occur via fiat withdrawal channels or on-chain swaps into fiat-denominated assets.
2.2 Ether Deployment Strategy
Currently, EF’s deployment strategy includes solo staking and supplying wETH to mature lending protocols. Core deployments will be continually reevaluated but are generally intended for long-term holding. Additionally, EF may borrow stablecoins to pursue higher on-chain yields. EF’s management and advisory teams will conduct rigorous due diligence on candidate protocols, focusing on contract security, liquidity risk, de-peg risk, and other factors. As the DeFi ecosystem matures, EF plans to integrate select on-chain asset allocations—including vetted yield farms and tokenized real-world assets (RWA)—into its fiat reserve strategy.
3. Fiat-Denominated Asset Policy
EF will allocate its fiat holdings according to three primary needs:
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Immediate Liquidity Assets: Cash and other highly liquid fiat instruments to meet real-time operational demands;
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Liability-Matched Reserves: Time deposits, investment-grade bonds, and other low-risk instruments to fulfill long-term obligations;
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Tokenized Real-World Assets (RWA): Managed under the same strategic objectives and risk guidelines as native crypto assets.
4. Transparency Policy
The EF Co-Executive Directors (Co-EDs) are accountable to the Board for treasury management and must ensure transparency, accountability, and informed oversight. To this end, EF has established a structured internal reporting framework, with the finance team responsible for preparing and maintaining reports distributed according to scope and sensitivity.
4.1 Quarterly Reports
The finance team provides quarterly reports to the Board and leadership, including:
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Performance (absolute returns and performance versus benchmarks);
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All Positions (open and closed positions since the last report);
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Summary of Major Events, including:
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Operations (processes, infrastructure, security updates/incidents, etc.);
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Ecosystem engagement (conferences, partnerships, etc.).
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4.2 Annual Report
The annual EF Report will include additional treasury-related information, such as summaries of major treasury allocations, including percentage breakdowns of fiat, idle ETH, and deployed ETH.
5. Cypherpunk Goals
The Ethereum Foundation (EF) is working to build and apply a practical evaluation framework based on cypherpunk principles through research, advocacy, and capital deployment. We call this framework “Defipunk,” characterized by the following traits:
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Security
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Open Source
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Financial Self-Sovereignty
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Technical Solutions Over Trust-Based Solutions (e.g., multisig, reliance on legal enforcement)
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Active deployment of cryptographic tools to protect civil liberties
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Privacy Protection
Privacy has historically been overlooked in broader DeFi, yet remains crucial. Privacy protects market participants from digital surveillance (e.g., front-running, sandwich attacks, liquidation sniping, targeted phishing, profiling, and data-driven coercion) and physical threats (e.g., in-person coercion).
5.1 EF Should Actively Support Projects Advancing Defipunk Ideals
Ethereum is attracting exponential inflows of capital, talent, and innovation. However, growth often exhibits path dependency: standards adopted during chaotic periods of rapid expansion can become entrenched legacy constraints; designs prioritizing transparency may default into surveillance modes. Existing systems often subtly pressure developers, narrowing the design space for novel DeFi primitives and limiting privacy-centric innovation. The Ethereum Foundation will work to resist these pressures.
Through research, advocacy, and strategic capital deployment, EF can help cultivate a natively Ethereum financial ecosystem that, at scale, defends financial self-sovereignty and preserves an open society in the electronic age.
Translating this vision into real infrastructure requires substantial effort. Building cypherpunk DeFi protocols today faces numerous challenges, including higher gas costs due to privacy features, friction in user experience, difficulty securing launch liquidity, stricter audit requirements due to technical complexity and immutability, and oppositional forces against privacy. As a result, today’s DeFi ecosystem largely depends on centralized elements—such as backdoor shutdown mechanisms or withdrawal functions, overreliance on multisig or MPC, widespread whitelisting, centralized and monitored user interfaces, and general lack of on-chain privacy—exposing DeFi markets and participants to systemic vulnerabilities.
Privacy especially requires intentional cultivation. As the Cypherpunk Manifesto states, “For privacy to be widespread, it must be part of a social contract.” Privacy has inherent network effects, yet has received little attention so far. This suggests that strong early support from institutions like EF can play a unique role in shaping a more privacy-preserving DeFi ecosystem.
EF holds a distinct advantage in guiding DeFi toward these goals. For example:
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Support early-stage DeFi protocols in developing privacy features;
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Encourage mature protocols to strengthen Defipunk attributes through research collaboration, liquidity support, and legitimacy-building resources;
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Advance research and development of decentralized user interfaces.
See §5.3 for a more complete set of criteria for project support.
5.2 Defipunk Starts With Ourselves
Advocacy for open source, privacy protection, and other Defipunk goals applies not only externally but also within EF’s own operations. Practicing Defipunk principles in EF’s treasury management is an important first step. More broadly, EF can adopt secure tools and build prudent operational structures that support all qualified contributors—including anonymous and pseudonymous participants—and further improve its security and privacy practices. This helps EF remain principled while enhancing its strength, stability, and resolve.
Employees involved in treasury management should use and/or contribute to open-source privacy-enhancing tools, especially when doing so helps build relevant skills. By embodying Defipunk principles in its own activities, EF will stay focused on its mission and gain the credibility and capability to support the broader ecosystem in adopting these principles.
5.3 Defipunk Evaluation Criteria
Below are specific criteria for evaluating protocols and user interfaces (UIs), designed to encourage new projects and improvements in existing ones. These criteria will apply to all future on-chain deployments by EF. While certain criteria (such as permissionless access, self-custody, and free open-source software) are binary, others involve nuanced judgment. Projects are not required to achieve “ideal” status across every dimension. We prioritize credible progress and clear improvement roadmaps over perfection from day one. We share this framework publicly to increase transparency in EF decision-making, establish consistency across these dimensions, and encourage the wider community to consider, adapt, or apply these standards when forming their own views.
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Permissionless Access: Do the core smart contracts allow anyone to interact without KYC or whitelisting?
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Self-Custody: Does the protocol allow users to retain self-custody and set it as the default option?
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Free Open-Source Software (FLOSS): Is the contract code freely available under a copyleft license (e.g., AGPL) or permissive license (e.g., MIT, Apache)? Merely providing source code (e.g., under BSL) does not qualify.
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Privacy Protection
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Transaction Privacy: Are options available to shield transaction sources/destinations/amounts?
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State Privacy: Are user/personal data and location information obscured on-chain?
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Data Privacy: Do the protocol and typical user interfaces avoid unnecessarily collecting user data (e.g., user agent) and personal data (e.g., IP address)?
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Open Development Process
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Is the development process reasonably transparent?
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Is the codebase publicly accessible and actively maintained?
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Are there clear rationales and version histories for protocol changes?
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Is the decision-making process for upgrades, parameters, and roadmap visible?
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Maximally Trustless Core Logic
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Immutability: Is the protocol’s core logic immutable, or governed by a highly decentralized, time-locked, and transparent process? (Avoid admin keys with broad privileges.)
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Maximally Viable Cryptoeconomic Model: Does the protocol rely as much as possible on cryptographic guarantees and economic incentives, minimizing reliance on legal wrappers (e.g., collateralization) or off-chain enforcement for core functionality?
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Oracle Dependence
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Is reliance on oracles minimized, and losses mitigated if oracles fail?
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When oracles are necessary, are they robust, decentralized, minimally governed, and resistant to manipulation?
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General Security
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Have contracts been audited, and is there a process tracking the audit submission hash against the final deployed version? Ideally, monitoring/alert systems should detect discrepancies.
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Are contract properties formally verified, or at least bytecode-verified on block explorers?
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Distributed User Interface (UI)
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Are multiple independent user interfaces available?
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Is the primary UI open-source and hosted in a decentralized manner?
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Can users interact directly with the contracts?
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6. Ongoing Stewardship Responsibility
The Ethereum Foundation (EF) is committed to long-term development and requires a robust, sustainable treasury management policy. Historically, EF has held ETH long-term, but is now gradually shifting toward staking and DeFi—not only to enhance financial sustainability but also to support a critical application area that already promises permissionless, secure access to foundational civil infrastructure for millions. EF’s participation in these domains sets a strong precedent for responsible, goal-aligned tool usage.
To achieve this, EF will make significant ongoing investments in building its internal capabilities.
If you have ideas that could contribute to EF’s integration with DeFi, please fill out this form.
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