From Cypherpunk to Defipunk: Ethereum Foundation Focuses on Privacy & Sustainability

The Ethereum Foundation has published a revised treasury policy, aimed at restructuring the way its reserves are managed and invested, with the aim of developing a strategy that better aligns with the on-chain economy that the organization itself helped build.

The nonprofit's new treasury policy includes two key initiatives that highlight the governance of the Ethereum ecosystem.

First, there is the ambitious goal of reducing annual spending from 15% of assets to just 5% by 2030, while at the same time also leveraging treasury to invest in DeFi protocols.

This approach could potentially deliver “acceptable returns on treasury assets” while preserving Ethereum’s principles, said Hsiao-Wei Wang, co-executive director of the foundation.

The new policies formalize a lower spending path and a rules-based approach to converting the foundation's Ethereum reserves into cash.

The foundation intends to achieve these goals by investing in lower annual operating costs and establishing a predictable “slide and base path” for its expenses, Wang said.

The foundation expects to remain a long-term steward, but anticipates its scope will gradually diminish, according to Wang.

The rules-based conversion means that Ethereum (ETH) is automatically sold when cash reserves fall below the 2,5-year spending buffer, which is about 37,5% of treasury, as Wang noted.

Each quarter, the Ethereum Foundation will sell a portion of its Ethereum reserves, depending on cash needs, by converting Ethereum to fiat via exchanges or on-chain swaps.

The cash reserve target, calculated as annual operating expenses multiplied by the desired term, “directly affects the size and frequency of ETH sales,” Wang said.

The Ethereum Foundation becomes 'Defipunk'

In the policy paper, the foundation introduces the concept of “Defipunk”, a new term describing how “cypherpunk” values ​​can be applied to DeFi (decentralized finance) and the broader Ethereum ecosystem.

The term takes its origins and core ideas from the Cypherpunk Manifesto, written by American programmer and mathematician Eric Hughes in 1993.

In this manifesto Hughes argues that privacy essential for a free and open society. To ensure privacy, individuals must build practical defenses using cryptography and code, rather than relying on the authority of governments or corporations.

The foundation has established criteria for the projects it wishes to support, in line with this vision.

“For privacy to be widespread, it must be part of a social contract,” Hughes wrote.

The Ethereum Foundation echoes this sentiment, with Wang noting that privacy has “indigenous network effects” but has “received almost no attention” thus far.

“Strong, early institutional support” from entities like the Ethereum Foundation could be “uniquely valuable in shifting the balance” toward privacy in the decentralized finance sector, Wang said.

Frequently Asked Questions

What are the major changes to the Ethereum Foundation's treasury policy?
The Ethereum Foundation has adjusted its treasury policy by reducing annual expenses from 15% to 5% and introducing a regulated approach to Ethereum (ETH) sales, using “Defipunk” principles for investing in DeFi protocols.

What does the concept “Defipunk” entail?
“Defipunk” is a new term describing the application of cypherpunk values ​​to the decentralized finance sector, with an emphasis on privacy as an essential aspect of the Ethereum ecosystem and DeFi.

How will the Ethereum Foundation structure ETH sales?
The foundation will structure Ethereum sales by selling a portion of its reserves on a quarterly basis depending on cash needs, with automatic sales occurring when cash reserves fall below the 2,5-year spending buffer.