Simply put
- In response to community input, this policy aims to standardize the Foundation’s methods for selling ETH.
- The foundation’s goal is to cut annual expenses from 15% down to 5% over the next five years.
- It also incorporates a set of “Defipunk” principles to evaluate the Defi protocol prior to deploying financial resources.
The Ethereum Foundation has rolled out a new financial policy designed to reorganize how it manages its reserves.
This latest set of financial strategies highlights two key directions for nonprofit organizations within the Ethereum ecosystem.
One of its primary objectives is to lower annual spending from 15% to just 5% of its assets by 2030, while also working with the Ministry of Finance for the Defi protocol.
These strategies are expected to sustain “acceptable returns on financial assets” that align with the core principles of Ethereum.
The updated policy formalizes a low spending trend and a systematic approach to converting the foundation’s Ethereum reserves into cash.
This is set to be executed by cutting annual administrative expenses and establishing predictable “glide paths and baselines” for spending, as explained by Wang.
The foundation aspires to be a long-term steward but anticipates a gradual narrowing of its scope, according to Wang.
As for rule-based conversions, they involve automatically selling Ethereum (ETH) if cash reserves dip below a 2.5-year cost buffer, which is roughly 37.5% of the Ministry of Finance.
Each quarter, the Ethereum Foundation liquidates a portion of its Ethereum reserves based on the cash needed, converting Ethereum to fiat through an exchange or chain swap.
The target cash reserve, based on annual operating expenses, directly influences the volume and pace of the ETH sales multiplied by the “desired runway,” as noted by Wang.
We reached out to the Ethereum Foundation for further insights.
Ethereum goes to “defipunk”
In its memo, the foundation introduced the term “defipunk,” which reflects how the values of “cypherpunk” can be applied in the realm of decentralized finance and the broader Ethereum ecosystem.
This concept stems from the original “Cypherpunk Manifesto” penned in 1993 by programmer and mathematician Eric Hughes.
In the manifesto, Hughes argues that privacy is crucial for a free society and that individuals should develop practical defenses through encryption instead of relying on government and corporate bodies.
The foundation aims to establish standards for projects that align with its vision.
“For privacy to be widespread, it must be part of the social contract,” Hughes stated.
The Ethereum Foundation echoes this sentiment, with Wang suggesting that privacy has an “intrinsic network effect,” yet it hasn’t received much attention until now.
“Strong, early institutional support” from entities like the Ethereum Foundation could play a vital role in shifting the balance concerning privacy in the decentralized financial sector, Wang suggested.
