Ethereum Foundation Cuts Annual Spending by 67% by 2030

The Ethereum Foundation has unveiled a new treasury policy aimed at reshaping how its reserves are managed and invested, aligning more closely with the on-chain world it helped create. This policy comes after receiving community feedback and seeks to normalize the foundation's approach to selling Ethereum (ETH).

The new policy includes two significant moves. First, the foundation plans to reduce its annual spending from 15% of its assets to just 5% by 2030. This gradual reduction in expenses is part of a broader strategy to ensure long-term sustainability and financial prudence. Second, the foundation will utilize its treasury assets to support decentralized finance (DeFi) protocols, aiming to earn acceptable returns while staying consistent with Ethereum's underlying principles.

Hsiao-Wei Wang, co-executive director at the Ethereum Foundation, emphasized that the new policies formalize a lower spending trajectory and a rule-based approach for converting the foundation's Ethereum reserves into cash. The foundation will commit to reduced annual operating expenses and create a predictable "glide path and baseline" toward spending. This approach ensures that the foundation remains a long-term steward of the Ethereum ecosystem while gradually narrowing its scope over time.

The rule-based conversion process involves automatically selling Ethereum only when cash reserves fall below a 2.5-year expense buffer, which is approximately 37.5% of the treasury. This ensures that the foundation has sufficient liquidity to cover its operational needs without depleting its reserves. For every quarter, the foundation will sell a portion of its Ethereum reserves based on the amount of cash required, converting the Ethereum to fiat through exchanges or on-chain swaps. The target cash reserve, calculated as the annual operating spend multiplied by the desired runway, directly informs the size and cadence of ETH sales.

In addition to the spending reduction and treasury utilization, the Ethereum Foundation has introduced the concept of "Defipunk." This term describes how cypherpunk values can be applied to DeFi and the broader Ethereum ecosystem. Derived from the Cypherpunk Manifesto written by Eric Hughes in 1993, Defipunk emphasizes the importance of privacy for a free and open society. The foundation has established criteria for projects it seeks to support, aligning with this vision of privacy and decentralization.

According to Wang, privacy has inherent network effects but has received very little attention so far. Strong, early institutional support from entities like the Ethereum Foundation could be uniquely valuable in promoting privacy in the decentralized finance sector. By adopting these principles, the foundation aims to flip the equilibrium for privacy, ensuring that it becomes a widespread and integral part of the social contract within the Ethereum ecosystem.