From passive management to active management, the Ethereum Foundation’s new financial strategy will regulate ETH sales

Review: Felix, PANews

The Ethereum Foundation released a new treasury policy on June 4, which outlines how the foundation will manage reserves, deploy funds in DeFi protocols, and privacy assessment standards, while maintaining Ethereum’s commitment to self-sovereignty and neutrality.

The Ethereum Foundation announced that it will adopt a more structured and transparent reserve policy, tying operating costs and cash needs to ETH reserves and sales to strengthen its financial position. This policy is a sharp departure from the Foundation’s historically passive capital stance.

Cut back on spending and regulate ETH sales

In recent months, the Ethereum Foundation's unexpected sale of ETH has sparked strong opposition from the community, with some critics claiming that the foundation's series of actions have undermined people's trust in the foundation.

Perhaps in response to these questions, the Foundation announced a comprehensive update of its asset management strategy. The Foundation’s annual operating costs (measured as a percentage of the Foundation’s funds) and operating years will be re-evaluated regularly, taking into account market dynamics and community opinions to ensure that the Foundation’s short-term operations are consistent with its long-term strategy.

The goal is to reduce annual spending from 15% of assets to 5% by 2030. Currently, the Ethereum Foundation has only 2.5 years left before running out of cash, so "the next 18 months will be critical."

In addition to this, the Foundation calculates its fiat reserve requirements by multiplying a fixed annual operating expense target (currently set at 15%) by 2.5 years of operation. ETH is automatically sold only when cash reserves fall below a 2.5-year spending buffer (approximately 37.5% of the treasury).

In addition, in order to continue the trend of closer cooperation with the DeFi ecosystem, the foundation will also pursue financing strategies, including individual staking and providing wETH to yield-based lending protocols. It may also borrow stablecoins and seek higher on-chain returns through RWA exposure and DeFi configuration.

In keeping with its commitment to transparency, the Foundation will also publish quarterly and annual reports outlining its asset holdings, investment performance, and any significant developments during each period.

As of October 31, 2024, the Foundation's reserves total approximately $970.2 million, consisting of $788.7 million in crypto assets and $181.5 million in non-crypto assets.

Using the “Defipunk” Principle to Evaluate DeFi Protocols

The policy also includes a codified commitment to privacy, which the foundation defines as “a fundamental civil liberty” in an increasingly surveilled financial environment.

Through new internal rules called “Defipunk,” the foundation will evaluate potential DeFi partners based on a range of criteria: permissionless access, self-custody, open source licensing, and technical privacy features such as transaction shielding.

DeFi protocols that fall short of the criteria may still qualify, but only if they demonstrate credible progress toward these ideals.

The Foundation also calls on employees “involved in treasury management” to also “upskill” by using open source, privacy-preserving tools. Employees involved in treasury management should use and/or contribute to open source privacy-preserving tools to complete their daily work, especially if they need to upskill in related areas.

In the new policy, the foundation emphasizes its commitment to the core values of “cypherpunk.” “Through research, advocacy, and strategic capital deployment, the foundation can help foster an Ethereum-native financial ecosystem that preserves self-sovereignty and sustains an ‘open society for the electronic age’ at scale.”

It’s worth noting that this could also put the foundation at odds with regulatory trends in the United States and Europe, as policymakers in those countries increasingly prioritize transparency and compliance over crypto privacy.

Related reading: Ethereum Foundation publicly laid off employees for the first time, strategic adjustments sparked controversy again, is the foundation model no longer effective?