Thanks to the EFers that offered beneficial enter and suggestions to the draft doc: 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 Monetary, and pcaversaccio for offering beneficial and insightful enter and the ultimate evaluate of this doc.
The Ethereum Basis (EF) exists to strengthen Ethereum’s ecosystem and uphold its long-standing non-negotiable aims: enabling “applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference“. EF Treasury helps EF’s long-term company, sustainability, and legitimacy. Capital deployments needs to be balanced between searching for returns above a benchmark fee and increasing EF’s position as a steward of the Ethereum ecosystem, with a selected deal with DeFi.
This doc gives the insurance policies and steering for EF Treasury administration and discusses the important thing indicators and issues.
1. Macro Coverage
To realize its aims, EF will keep and periodically refine an asset-liability administration coverage and a high-level grant allocation technique. EF will handle its belongings, contemplating danger, length, and liquidity, whereas remaining aligned with Ethereum’s core ideas.
Our method focuses on two variables:
A: Annual Opex (expressed as % of present whole treasury)
B: Years of Opex Buffer (variety of years of working runway held in reserve)
The place:
- A × B: determines goal fiat-denominated (offchain or onchain) reserves. This worth straight informs the scale and the cadence of ETH gross sales.
- (TotalTreasury – A × B) defines the worth of ETH reserves: dividing by ETH worth offers the variety of ETH that may stay in core holdings.
At common intervals, the Board and Administration re-evaluate each variables, weighing market dynamics and group enter to maintain short-term operations aligned with long-term technique. Two additional lenses form every evaluate: (1) figuring out pivotal years that advantage heightened ecosystem engagement and (2) sustaining a counter-cyclical posture—stepping up assist in downturns and moderating it in bull runs.
Present targets stand at A = 15% of treasury for annual opex and B = 2.5 years. This coverage displays our conviction that 2025-26 are more likely to be pivotal for Ethereum, warranting enhanced deal with crucial deliverables.
EF expects to stay a long-term steward, however envisions its scope regularly narrowing. We intend to scale back annual opex roughly linearly over the subsequent 5 years, ending at a long-term 5% baseline that’s frequent for endowment-based organizations. This glide path and baseline shall be reviewed and adjusted as circumstances evolve.
2. Crypto Belongings Coverage
The EF will search to earn acceptable returns on treasury belongings in a fashion according to Ethereum’s underlying ideas.
The important thing issues of the on-chain portfolio embody, however will not be restricted to:
- Security and safety: favor battle-tested, immutable, audited, permissionless protocols. Encourage positive-sum actors within the Ethereum DeFi ecosystem. Purpose to counterbalance, and never contribute to, systemic dangers to Ethereum as a complete. Frequently re-evaluate tasks for assault vectors and dangers, together with however not restricted to: sensible contract, governance, custodial (e.g., stablecoins), and oracle dangers.
- Cheap return and danger: choose conservative selections with increased levels of liquidity as an alternative of chasing solely excessive returns. Guard towards not simply the chance of lack of funds but in addition dangers to liquidity and normal portfolio flexibility. Deployments which might be considerably increased danger might occur however shall be of a extra restricted scale and in segregated sleeves. In all instances, goal to be a modest portion of any single undertaking’s whole TVL.
- Ethereum’s deeper targets: assist maximally safe, decentralized, open supply, cypherpunk purposes. Cypherpunk DeFi is permissionless: no barbed-wire fences. Best protocols are trust-minimized, composable, and maximally privacy-friendly.
We’ll often reallocate funds between protocols for causes similar to altering market circumstances, diversification, or new yield alternatives. Withdrawals needs to be understood on this context and never as anti-endorsements.
2.1 Ether Gross sales
All year long, EF will periodically calculate the deviation of the treasury’s fiat-denominated belongings from the Opex Buffer (“B”) goal and decide how a lot, if any, Ether shall be offered over the subsequent three months. These gross sales will usually be by way of fiat off-ramps or onchain swaps for fiat-denominated belongings.
2.2 Ether Deployments
Our present methods embody solo staking and wETH provided to established lending protocols. Core deployments are re-evaluated frequently however supposed to be long-term. EF may borrow stablecoins and search increased yields onchain. EF Administration and advisors will vet candidate protocols for contract safety, liquidity danger and de-peg danger, and different components. Because the DeFi ecosystem matures, EF plans to fold choose on-chain allocations, together with to fastidiously vetted farms and tokenized RWAs, into its fiat reserve.
3. Fiat-denominated Belongings Coverage
The EF will allocate its fiat holdings throughout:
- Speedy-liquidity belongings: money and different extremely liquid fiat-denominated devices that cowl real-time operational wants;
- Legal responsibility-matched reserves: fixed-term deposits, investment-grade bonds, and different low-risk devices aligned with longer-term obligations; and
- Tokenized RWAs: ruled by the identical strategic aims and danger pointers as native crypto belongings.
4. Transparency Coverage
The EF Co-EDs are accountable to the Board for the administration of the treasury.
To make sure transparency, accountability, and knowledgeable oversight, a structured inner reporting cadence is in place. Stories are ready and maintained by the Finance group, with distribution primarily based on scope and sensitivity.
4.1. Quarterly Stories
The Finance group gives quarterly stories to the Board and Administration, together with:
- Efficiency (Absolute and towards Benchmarks)
- All positions (Open & Closed for the reason that final report)
- A abstract of notable occasions, together with:
- Operations (processes, infrastructure, safety updates/incidents)
- Ecosystem engagement (conferences taken, partnerships, and so on.)
4.2. Annual Stories
The annual EF Report will embody additional treasury-related data, together with a abstract of main treasury allocations. For instance, percentages in fiat, idle ETH, and deployed ETH.
5. Cypherpunk Targets
The EF (via its analysis, advocacy, and capital deployments) will construct on cypherpunk ideas to assist formalize and apply a sensible analysis framework we consult with as “Defipunk” which has the next properties:
Privateness is traditionally uncared for within the broader DeFi area, however it stays important. Privateness protects market members from each digital surveillance (e.g., entrance operating, sandwiching, liquidation sniping, focused phishing, profiling and data-based coercion) and bodily threats (i.e. in-person coercion).
5.1. EF ought to actively assist tasks of their Defipunk journey
Ethereum is poised to draw exponentially bigger flows of capital, expertise, and modern power. Development, nonetheless, is usually path-dependent: requirements adopted in intervals of chaotic speedy development harden into legacy constraints, and designs that privilege transparency can lock in surveillance by default. Incumbent programs typically exert refined pressures that slender the design area for novel DeFi primitives and constrain privacy-focused innovation. The Ethereum Basis will defend towards these pressures.
Via analysis, advocacy, and strategic capital deployments, the EF may also help domesticate an Ethereum-native monetary ecosystem that safeguards self-sovereignty and sustains, at scale, “an open society in the electronic age.”
Turning this imaginative and prescient into actual infrastructure takes work. There are quite a few challenges to constructing cypherpunk DeFi protocols at this time: increased fuel costs for privateness, UX friction, issue bootstrapping liquidity, extra stringent audit wants related to technical complexity and immutability, and, merely put, opponents to privateness. Because of this, a lot of at this time’s DeFi ecosystem depends on centralized components: backdoor shutdown mechanisms or funds extraction features, extreme reliance on multisigs or MPC, pervasive use of whitelists, centralized and surveilled UIs, and a normal absence of onchain privateness – all depart each DeFi markets and members uncovered to systemic vulnerabilities.
Privateness is especially necessary to get proper. As A Cypherpunk’s Manifesto factors out, “for privacy to be widespread it must be part of a social contract”. Privateness has inherent community results, and but it has obtained little or no consideration up to now. This means that robust, early institutional assist from an EF-like entity could be uniquely beneficial in flipping the equilibrium towards a extra privacy-focused DeFi panorama.
EF is well-positioned to assist information DeFi’s evolution towards these targets. For instance:
- Supporting nascent DeFi protocol to develop privateness options
- Encouraging mature protocols to strengthen Defipunk properties with analysis collaborations, liquidity, legitimacy, and different assets
- Selling analysis and improvement of decentralized UIs
A extra full record of standards for undertaking assist could be present in §5.3.
5.2. Defipunk begins at house
Advocating for open supply, privateness and different Defipunk targets extends far past EF, however embody EF’s personal inner operations the place attainable. Utilizing Defipunk ideas within the EF’s personal treasury administration is a key first step on this regard. Extra typically, the EF can use secureware instruments, construct a prudent operational construction that’s supportive of all certified contributors, together with anon and pseudonymous members, and in any other case enhance its safety and privateness practices. It will assist the EF stay principled and develop in power, stability, and the power to face agency.
Employees concerned in treasury administration ought to use and/or contribute to open-source, privacy-preserving instruments for routine duties, particularly if this requires upskilling in these areas. By taking care to stay and breathe Defipunk ideas in its personal actions, EF will keep on course and achieve the capabilities to assist the remainder of the ecosystem in doing the identical.
5.3. Defipunk Standards
These are concrete standards for inner analysis of protocols and UIs, supposed to encourage new tasks to begin, and present tasks to enhance. They may apply to all of EF’s future onchain deployments. Whereas some standards (e.g., permissionless entry, self-custody, and FLOSS) are easy binary determinants for deployment, others are extra advanced. For now, tasks will not be required to sit down on the “ideally suited” finish of each axis. We search for credible progress and a roadmap for enchancment, reasonably than perfection on day one. We share the framework brazenly to supply legibility for EF selections and construct alignment on these axes, and in order that the broader group can contemplate, adapt, or apply them when forming its personal views.
- Permissionless entry
- Can anybody work together with the core sensible contracts with out KYC or whitelisting?
- Self Custody
- Does the protocol enable customers to take care of self-custody and current it as default?
- Free-Libre & Open Supply (FLOSS)
- Is the contract code free-libre open-source, with both a copyleft license (e.g., AGPL) or a permissive license (e.g., MIT, Apache)? Supply-available (e.g., BSL) does NOT qualify.
- Privateness
- Transactions: Does it supply choices for shielding tx origins/locations/quantities?
- State: Is person/private knowledge and/or place data shielded onchain?
- Information: Does the protocol (and its typical UIs) keep away from pointless assortment of person knowledge (e.g., user-agent) and private knowledge (e.g., IP addresses)?
- Open Improvement Processes
- Is the event course of moderately clear?
- Are code repositories publicly accessible and actively maintained?
- Are protocol adjustments documented with clear rationales and versioning historical past?
- Is there visibility into the decision-making course of for upgrades, parameters, and roadmaps?
- Maximally Trustless Core Logic
- Immutability: is the elemental logic of the protocol non-upgradeable or ruled by a extremely decentralized, time-locked, and clear course of? (Keep away from admin keys with broad powers.)
- Maximal viable cryptoeconomics: does the protocol rely maximally on cryptographic ensures & financial incentives, and cut back using authorized wrappers (like collateralization assurances) or offchain enforcement to the naked minimal required for its core perform?
- Oracle reliance
- Does it decrease reliance on oracles, and decrease losses in instances the place the oracle is compromised?
- Does it use sturdy, decentralized, governance-minimized and manipulation-resistant oracles wherever oracles are needed?
- Common Safety
- Are the contracts audited, and processes in place to trace the audited commit hash towards what was final deployed, ideally together with monitoring/alerting when the diff adjustments?
- Are contract properties formally verified or at the very least bytecode-verified on block explorers?
- Distributed UIs
- Are there a number of unbiased UIs?
- Is the first UI open supply and hosted in a decentralized method?
- Can customers work together straight with contracts?
Enduring Stewardship
The EF is right here to remain for a very long time and desires a strong long-term treasury administration coverage. We’ve got for a very long time merely held ETH, however are actually more and more shifting into staking and DeFi, each to reinforce monetary sustainability and to assist a key software class that’s delivering on the promise of permissionless safe entry to base civilizational infrastructure for hundreds of thousands of individuals at this time. EF’s involvement in these areas is well-positioned to set precedents for software use that’s accountable and appropriate with its underlying targets. To do that, it should make investments closely in skilling up its personal competency over time.
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