Ethereum Foundation's First-Ever Treasury Policy Explained

On June 4, 2025, the Ethereum Foundation (EF) published its first comprehensive Treasury Policy. This isn’t just another internal memo,it marks a significant shift from a basic “hold ETH” approach toward a structured, multi-pronged strategy balancing operational spending, yield-seeking in DeFi, and a renewed dedication to Ethereum’s cypherpunk roots. In short, EF is signaling that it intends to manage its billions of dollars in assets with the same ethos that characterize decentralized finance itself.

1. (TL;DR)
2. Explainer: Treasury Policy
3. Policy Analysis
4. Critique & Opinion
5. Conclusion
6. Similar Blogs

For years, EF’s treasury was synonymous with simply holding ETH and, at times, selling chunks to cover expenses. Now, those days are over. With clear targets for operating expenses (“opex”) as a percentage of total assets, defined buffers, onchain yield allocations, and a detailed “Defipunk” framework, EF aims to be both financially sustainable and an active steward of the broader Ethereum ecosystem. Might sound complex but below we walk through what the policy says, explain its core concepts, analyze why it matters, and offer a measured critique.

1. From Wallet to Strategy (TL;DR)

What was announced? EF released a multi-section Treasury Policy detailing how it will manage both crypto (ETH and DeFi positions) and fiat holdings.
Why now? Ethereum has grown from an experimental blockchain to a multi-hundred-billion-dollar ecosystem. As both a beneficiary and steward of that growth, EF faces increasingly complex responsibilities.
Who contributed? Hundreds of EF team members and external experts including Vitalik Buterin, Tim Beiko, and auditors like Steakhouse Financial reviewed and shaped this policy.
Key dates: Policy posted June 4, 2025. Underlying financial targets span 2025-2026, with a five-year glide path to a steady-state 5% opex ratio.

EF now commits to balancing real-world expenses against a long-term vision: continue funding critical Ethereum research, ecosystem grants, and community initiatives, while making yield-oriented deployments in DeFi.

2. Explainer: Treasury Policy

EF’s policy is dense, but five pillars stand out:

Asset-Liability Framework
- Variables A & B:
  - A = Annual opex (currently 15% of total treasury).
  - B = Years of opex buffer (currently 2.5 years).
- How it works: Multiply A×B to calculate the fiat reserves needed to cover the next 2.5 years of spending. Anything above that buffer gets treated as ETH reserves, which can remain staked, deployed in DeFi, or sold in a controlled manner.
- Analogy: Think of a university endowment that targets “six months of payroll in cash” before investing the rest in bonds or equities. EF is doing something similar, except it has two categories, fiat-based instruments and onchain deployments and spans a multi-year horizon.
Crypto Assets Policy
- Safety First: EF favors battle-tested, audited, permissionless protocols (e.g., Aave, Lido) rather than chasing the highest yield.
- Cypherpunk Goals (“Defipunk”): See Section 5 of the policy, which establishes a graded framework (permissionless access, self-custody, FLOSS licensing, privacy, trust-minimized logic, etc.) to evaluate any onchain deployment.
- In Practice: Instead of parking 100% of idle ETH in a high-yield farm run by a centralized team, EF might allocate 70% to Lido (for staking), 20% to a decentralized money market like Aave (earning stablecoin yield), and 10% to an emerging privacy-oriented AMM, only if it meets Defipunk criteria.
Fiat-Denominated Assets Policy
- Immediate-Liquidity vs. Liability-Matched:
  - Funds needed for short-term (daily/weekly) operations sit in cash or cash-equivalents.
  - Longer-term obligations (e.g., multi-year commitments to grant programs) go into low-risk, fixed-term instruments—investment-grade bonds or tokenized real-world assets (RWAs).
- Example: If EF projects $30 million of spending over the next 18 months, that entire amount sits in an insured bank account or short-duration bonds. Anything beyond that is free to be “invested” onchain—staking ETH or providing liquidity.
Transparency & Reporting Cadence
- Quarterly Reports: Detailed breakdowns of performance (both absolute and vs. benchmarks), open/closed positions, and notable events (security updates, major ecosystem grants, etc.).
- Annual Reports: High-level pie charts showing “X% in fiat, Y% in idle ETH, Z% deployed onchain,” plus narrative summaries.
Cypherpunk/Defipunk Mandate
- Origins: Drawing from “A Cypherpunk’s Manifesto,” EF wants to preserve privacy, decentralization, and self-sovereignty in its capital deployments.
- Defipunk Criteria (Excerpt):
  1. Permissionless Access: No KYC or whitelisting.
  2. Self-Custody by Default: Wallet integration, non-custodial UX.
  3. FLOSS Licensing: No closed-source or proprietary code.
  4. Privacy Protections: Options to shield transaction data; minimal user data collection.
  5. Trust-Minimized Logic: Avoid admin keys or backdoors; if upgrades exist, they’re time-locked and community-governed.
  6. Oracle Minimalism: If price feeds are needed, use decentralized oracles like Chainlink or a custom open-source feeder.
  7. Distributed UIs: Multiple, independent front-end implementations; direct contract interaction via Etherscan or a command-line interface.

EF acknowledges it won’t be perfect Day 1. Instead, it will look for “credible progress”, meaning a new privacy DEX might launch with rudimentary zk-rollup support, but as long as they have a roadmap to improve, EF might deploy a small pilot tranche.

3. Policy Analysis

3.1 From Passive to Active Stewardship

Previously, EF’s default was: “Hold ETH, sell some periodically to cover payroll”. That approach offered simplicity but left money idle, no staking yield, no DeFi multipliers, and zero alignment with protocol development. Now, EF says: “We’re going to stake, lend, and critically fund privacy-focused projects that align with Ethereum’s founding ethos”.

3.2 Balancing Operational Needs vs. Ecosystem Engagement

The A×B Mechanism: If annual opex is 15% of treasury and the treasury is $1 billion, EF aims to hold $150 million per year. Multiply by 2.5 years, and $375 million sits in safe fiat. The remaining $625 million becomes available for staking or DeFi.
Counter-Cyclical Posture: In bear markets (ETH price down 30%+), EF would lean on its fiat buffer, perhaps pause new grant commitments, and even acquire more ETH if prices are depressed. In bull runs, EF might moderate spending to avoid overheating the ecosystem.

3.3 Defipunk and Its Consequences

Why Don’t All Protocols Qualify? Many AMMs (like the earliest versions of Uniswap) require UI-hosting companies and assume KYC integrations for fiat ramps. EF’s stance is: “Unless you can show credible progress toward removing UX-level surveillance or centralized whitelists, we can’t deploy large sums”.
Example: If “ZkPrivacyDEX” launches with audited smart contracts and a minimal front-end, but relies on Metamask (which logs user IPs), it would score lower on Defipunk’s “Data” axis. However, if the project integrates a Tor-based frontend and offers end-to-end encryption, it moves closer to EF’s ideal.
Potential Ecosystem Impact: EF’s capital can make or break early-stage projects. If Defipunk criteria become a de facto “seal of approval”, we may see a surge of privacy-first protocols seeking EF’s backing a positive signal for Ethereum’s long-term health.

4. Critique & Opinion: Strengths, Questions, and Caveats

No policy is perfect on Day 1. Here’s where EF’s Treasury Policy shines and where it raises lingering questions.

4.1 Strength: Clear, Quantifiable Targets

Benefit: A and B values (15% and 2.5 years) eliminate guesswork. The broader community now understands EF’s spending function.

4.2 Strength: Embracing DeFi Rather Than Avoiding Risk

Benefit: By staking and lending ETH, EF passively earns yield, likely in the 4–6% range for staking and 2–3% on wETH in blue-chip money markets.
Real-World Numbers: If $600 million of ETH is staked at 5% yield, that’s $30 million/year, effectively lowering “net opex” in fiat terms.
In 2022–2023, many protocols simply avoided DeFi due to headlines about exploitable smart contracts. EF’s push to vet and selectively deploy can help professionalize risk management across the board.

4.3 Strength: Defipunk

Ecosystem: Suppose a new borrowing protocol emerges that offers 12% stablecoin yields but stores user data on centralized servers. EF’s policy steers clear, pushing developers toward privacy-preserving alternatives. Over time, this can reshape developer priorities.
If a $10 billion DeFi market continues to ignore privacy, onchain surveillance becomes normalized. EF’s $1 billion+ treasury can slow or reverse that trend.

4.4 Question: Are A & B Conservative Enough?

In traditional finance, pension funds often maintain 5–7 years of cashflow coverage because liabilities stretch decades. EF’s 2.5 year metric feels aggressive if a major market crash coincides with heightened development needs.

Possible Outcome: The Board will need to revisit A and B semi-annually, as the policy states. If they don’t, EF could be forced to liquidate large ETH positions at depressed prices, hurting both the ecosystem and EF’s reserves.

4.5 Question: Defipunk vs. Pragmatism??

Tension Point: A promising DeFi project might lack robust privacy today but commits to rapid iterations. EF’s “not required to be perfect” language helps; however, if the policy is applied too stringently, it could exclude many worthy early-stage builders.
EF must strike a balance, reward credible roadmaps without penalizing projects for being 1.0 rather than 2.0.

Conclusion

Ethereum Foundation’s Treasury Policy is more than a formal announcement, it’s a reimagining of how EF will wield its capital to propel the ecosystem forward. By clearly defining spending targets (A & B), embracing onchain yield in DeFi, and codifying a Defipunk ethos, EF is positioning itself as a long-term steward rather than a reactive grantmaker.

Yet, like any policy, its success hinges on execution. Maintaining flexibility in A & B, avoiding overly rigid Defipunk gatekeeping, and continuing to refine reporting mechanisms will be crucial. If done well, this policy can become a blueprint for other blockchain foundations: how to honor cypherpunk core values while acting judiciously in financial markets.

For developers, grant seekers, and community members, here’s what to watch next:

Quarterly Reports (Q3 2025): Will EF meet its target yields? How much ETH is staked vs. deployed?
Early Defipunk Pilots: Which privacy oracles, layer-2s, or composable DeFi primitives receive capital and do they follow through on promised roadmaps?
Adjustments to A & B: As Ethereum moves into “Pectra Upgrade” features or the broader macro environment shifts, will EF keep 15% / 2.5 years, or revise to reflect new realities?

If you have any thoughts or feedback that you would like to share, you can write to team@etherworld.co or @ether_world

Ethereum Foundation's First-Ever Treasury Policy Explained

Table of Contents

1. From Wallet to Strategy (TL;DR)

2. Explainer: Treasury Policy