Cost reduction and efficiency improvement = layoffs + selling ETH? What signals is the EF financial policy reform conveying?

In the context of the ongoing evolution of Decentralization governance, the collaborative relationship among foundations, tech companies, capital institutions, and developer communities is also moving toward a more complex yet potentially more efficient new stage.

Written by: Penny, Rhythm

On June 4th, the Ethereum Foundation (EF) officially released its latest "Treasury Management Policy," which systematically outlines its financial expenditure policies, asset allocation strategies, and the long-term vision of "Defipunk." The policy aims to enhance the financial resilience of the foundation, support DeFi innovation, and strengthen its value stance on privacy protection and self-custody.

Ethereum Foundation "Treasury Management Policy" page

The role of the Ethereum Foundation (EF) is to support the long-term autonomy, sustainability, and legitimacy of the foundation. The Ethereum Foundation (EF) is expected to continue as the long-term manager of the ecosystem, but its scope of responsibilities will gradually narrow.

Fiat currency reserves increase, heavily "investing" in product delivery

According to the new policy, EF will determine the allocation ratio of fiat currency and ETH based on the "Operating Expense Ratio × Buffer Years" model, and will maintain annual expenditures at a high level of 15%. The foundation pointed out that 2025–2026 will be a key phase for the ecosystem, requiring a concentration of resources to promote the technological implementation of the protocol layer, including L1 scaling, blob technology, and UX optimization.

EF stated that 2025-2026 will be a critical window for advancing the implementation of the protocol, with an expected annual expenditure of 15% and a fiat buffer period of 2.5 years. This means the foundation needs to convert about 37.5% of the treasury into fiat to support medium to short-term investments.

According to the newly released "Financial Management Policy" by EF, A represents the annual operating expenses (as a percentage of the current total treasury), and B represents the operational buffer years (the number of years that can support operations from reserves).

Specifically, this model logic can be divided into three levels, corresponding to strategy formulation, amount calculation, and execution.

Layer One: Structural Model, Set Asset Allocation Ratio

The foundation first uses a structured model to determine its asset allocation framework. This model derives a target fiat currency ratio by multiplying the proportion of annual operating expenses to the treasury (A) by the desired operating buffer duration in years (B):

A × B: Determines the target reserve size priced in fiat currency. This value determines the frequency and scale of ETH sales.

This layer of the model does not focus on specific amounts but emphasizes how the foundation should maintain a long-term asset structure, reducing the pressure of short-term decision-making due to price fluctuations. It is suitable for the formulation of governance frameworks or asset allocation policies.

According to data disclosed in the "2024 Ethereum Foundation Report," the total value of the Ethereum Foundation treasury is $970.2 million, a decrease of 39% compared to the last disclosure. Of this, the operating expenses for 2023 are approximately $134.9 million, accounting for 13.9% of the total treasury value.

According to the new financial standard of 15% annual operating expenditure and a 2.5-year buffer period, the target fiat reserve ratio for EF is 15% × 2.5, which is 37.5%. Currently, the foundation's cryptocurrency asset ratio is as high as 81.3%. Under the new standard, the foundation may need to reduce its ETH holdings by nearly 30%.

According to the EF financial report, the operating expense classification of the Ethereum Foundation for FY 2023 (left) and the asset allocation ratio of the treasury as of October 2024 (right), EF needs to reduce its holdings of crypto assets by nearly 30% according to the new financial standards.

Layer Two: Amount Model, Calculating How Much Fiat Currency to Raise

After setting the structural ratio, the foundation will apply the target ratio to the current total value of the treasury, converting it into a specific fundraising target:

Target fiat reserve = A × B × current total value of the treasury

Corresponding to the actual amount, its target fiat currency reserve is approximately 363 million USD. This amount model is used to assess whether the current fiat currency reserves are sufficient and whether it is necessary to sell ETH to raise the difference, serving as an important basis for decision-making at the execution level.

Layer 3: Execution Model, Reverse Calculate How Many ETH to Hold

Ultimately, in order to achieve the allocation goals of fiat currency and ETH, the foundation will regard the remaining portion of the treasury (i.e., 1 - A × B) as the reserve value of ETH, and divide it by the current price of ETH to derive the amount of ETH that should be held:

TotalTreasury - A × B: This is the target value of the ETH reserves (divided by the ETH unit price to obtain the core holding of ETH).

Target ETH amount = (1 - A × B) × Total treasury ÷ Current ETH price

This step translates the strategy model into actual position requirements. Corresponding to the actual amount, the foundation's treasury is 970 million USD, A × B = 37.5%. Based on an ETH price of 2,500 USD, the foundation should retain approximately 242,000 ETH as core long-term holding assets.

Compared to traditional budgeting systems, this model offers a more flexible asset allocation method: it allows for timely cashing out of fiat currency during bull markets, enhancing cyclical resistance; it also maintains a long-term holding belief during market downturns. EF stated that the board will regularly evaluate parameters A and B to dynamically adjust the asset structure, ensuring that resource allocation is in sync with strategic rhythm.

The next two and a half years are considered a critical period for the ecosystem by the Ethereum Foundation, so it is necessary to focus resources on promoting important technology delivery. In 2025, EF will spend about 15% of its treasury funds (37.5% of fiat currency reserves) and plans to maintain a legal buffer for 2.5 years of spending. The company plans to reduce annual operating expenses roughly linearly over the next five years, eventually reaching a baseline level of 5% over the long term.

Related reading: "Ethereum Foundation 2030 Plan: Reduce ETH Spending to 5%, Actively Support Defipunk"

Optimize asset management, emphasize RWA quotas

In terms of asset allocation, the Ethereum Foundation (EF) has further clarified its asset allocation framework in the new policy, aiming to balance security, liquidity, and long-term robustness.

In terms of crypto assets, EF indicates that it will seek robust financial returns without violating the principles of Ethereum's Decentralization and openness. The foundation prioritizes deploying to audited, permissionless, and transparently structured DeFi protocols, emphasizing the prevention of potential risks related to smart contracts, governance, stablecoins, and oracles, and avoiding excessive pursuit of high-risk yields.

On-chain funds will be flexibly allocated based on market conditions, risk exposure, and yield opportunities. Currently, this includes independent staking and providing wETH liquidity to mainstream lending protocols. In the future, there are plans to introduce stablecoin lending and some high-security on-chain RWA products as supplements. In addition, EF will evaluate the deviation between actual fiat reserves and operational buffer targets each quarter to decide whether to sell ETH and make strategic choices between off-chain exchanges or on-chain swaps.

Compared with the previous strategy of focusing on on-chain returns, EF has explicitly introduced tokenized real-world assets (Tokenized RWAs) as an important component of fiat assets. Its allocation structure is divided into three tiers: immediate liquid assets that cover daily expenses, low-risk assets that match medium- and long-term obligations, and tokenized real-world assets (Tokenized RWAs) that are integrated into a unified strategy management system.

This change sends a clear signal: the foundation is starting to consider more robust yield tools from the fiat world, aiming to support the sustainability of higher short- to medium-term expenditures, rather than relying on the randomness of market conditions or on-chain yields.

It is worth noting that only RWA protocols that meet conditions such as on-chain transparency, auditability, and Decentralization may be included in the foundation system. Conversely, traditional RWA projects that are structurally closed and rely on legal trust pathways will face higher barriers.

Such adjustments not only enhance the robustness of the treasury structure but also reserve institutional space for further expanding on-chain asset management paths in the future. Currently, the details of the relevant deployment have not been made public.

The "New Standard for Entrepreneurship" in Issuing Ecological Projects

In addition, EF has set out clear goals for Cypherpunk in its new fiscal policy, and based on this, it has built a set of evaluation frameworks called "Defipunk", which aims to promote a more decentralized, privacy-friendly, and technology-self-sufficient financial infrastructure. The framework emphasizes six core values: security, open source, financial autonomy, technology instead of trust, freedom through cryptographic tools, and privacy, with a particular focus on privacy at the transaction and on-chain data levels.

2023 fiscal year EF operational expenditure direction, most of which flows into L1 underlying R&D and the establishment of "new institutions". After EF announced layoffs and adjusted its strategic direction, expenditures in these areas may significantly decrease.

At the same time, EF has developed a standardized evaluation system for future on-chain deployments. Specifically, it has permissionless access, self-custody capabilities, FLOSS-level open source protocols, privacy protection options, open and transparent development and governance processes, trust-minimized core logic, manipulation-resistant oracle mechanisms, security audit guarantees, and decentralized user interfaces. According to EF, this evaluation framework will serve as an important reference standard for the deployment of treasury funds in the future, encouraging ecological projects to continue to optimize in the direction of security, privacy and decentralization, so as to jointly build a long-term financial ecosystem that is in line with crypto-native values.

The Defipunk framework will affect the Ethereum Foundation's funding mechanism for developers, especially in terms of privacy. The EF explicitly regards privacy as a future focus, emphasizing support for hidden transactions, data protection mechanisms, and Decentralization user interfaces, while encouraging on-chain anonymous operations. The foundation stated that "privacy is a key unfinished task for DeFi," and will promote the development of the relevant ecosystem through strategic funding and research collaboration. This shift in position may bring new capital inflows and long-term endorsements for privacy protocols like Railgun and anonymous identity projects.

A policy framework with public standards and evaluation mechanisms signifies the quiet departure of an era that heavily relies on the subjective judgments of core members. For a long time, projects wishing to gain "legitimacy" in the Ethereum ecosystem often had to establish connections with the EF through informal channels. Whether it is project founders seeking endorsement or investment institutions striving to engage with quality targets as early as possible, researchers at the EF are seen as critical nodes to access resources and discourse power. This interpersonal network-dominated ecological operation model has made "getting close to the EF" an unavoidable path to success.

In this context, the evaluation framework launched by EF for "Defipunk" is particularly significant. It is not only a technical description of the rules for fund utilization but also marks a shift in ecological governance philosophy—from the "consensus politics" driven by implicit power networks to a transparent mechanism based on open standards and value orientation.

The Defipunk evaluation system, centered on security, Decentralization, and privacy protection, provides a clearer institutional path for future projects to secure funding support and ecological recognition. In other words, from now on, whether a project can gain support will no longer solely depend on "who they have good relations with," but rather on whether it aligns with the long-term vision and public value goals of Ethereum.

This is a loosening at the institutional level and an important starting point for ecological culture to return from personal preference to technological rationality.

Echoes from the community, has ETH hit bottom?

As the Ethereum Foundation releases new financial policies and proposes the goal of "reducing costs and increasing efficiency," a series of noteworthy movements are also emerging in the market. Internal personnel adjustments within the Foundation, strategic bets on ETH from the capital market, and the periodic rebound of the ETH/BTC exchange rate intertwine to create a more complex ecological structure. The community has engaged in extensive discussions on this, with opinions resonating between consensus and divergence.

On June 3, EF announced the layoff of some R&D personnel and restructured the original research team into a new department called "Protocol," focusing resources on three major technical directions: L1 scaling, blob scaling, and UX improvements. The official position on this move is as an optimization of resource allocation. On one hand, it involves laying off some R&D personnel, especially those teams that have been stuck in the theoretical phase for a long time; on the other hand, it introduces a stricter accountability mechanism, requiring rapid transformation of research results into tangible outputs. Joint Executive Director Hsiao-Wei Weng expressed on social media X that he hopes the new structure will enable core projects to progress more efficiently.

Previously, the verbal and written criticism of the Ethereum Foundation (EF) has been protracted, and the weak trend of Ethereum in the past few months has also promoted the fermentation of community dissatisfaction, many famous investors and developers have expressed their opinions and dissatisfaction with EF, and some core members have left EF and turned their research and resources to the outside of the foundation, indicating that EF's internal differences have reached the point of irreconcilability, and EF has been directly pushed to the forefront.

Related Reading: "Core Members Leave to Establish 'Shanzhai EF', How Much Longer Can the Ethereum Foundation Hold On?"

As a result, some community voices view the restructuring of the Ethereum Foundation as a "self-correction" in response to external criticism. Some developers also pointed out that this is a necessary adjustment to focus, which is expected to concentrate more power on the core evolution of the protocol layer.

Around the same time, the U.S. publicly traded company SharpLink Gaming announced its Ethereum treasury reserve strategy, planning to raise $425 million for long-term holding of ETH, with the leading investor being Consensys, an important technological driver in the Ethereum ecosystem. This operation, referred to as the "ETH version of MicroStrategy", is interpreted in the community as a repricing of Ethereum by traditional capital markets and is also seen as Consensys's public endorsement of its technological roadmap.

SharpLink's large bets quickly boosted market confidence. After the announcement on May 28, the ETH price rose 4% within 24 hours, reaching $2639, with a cumulative increase of 50% over the past month.

Related reading: "Spent $425 million to create an ETH version of MicroStrategy, 'E Guardians' abandon political correctness"

On June 4th, the ETH/BTC exchange rate rose by more than 2% in a short period, drawing market attention to the direction of capital flow. Traders view this as a signal for ETH's relative value to revert. Some analysts believe that ETH is currently approaching the peak area of a large technical formation, and if it breaks through successfully, the price is expected to rise to $2000 or $3000, with the driving force possibly coming from fundamental improvements or merely driven by large capital entering the market.

Related Readings: "10x Research: ETH Movement More Resilient Than Expected, Approaching Key Technical Pattern Apex"

However, what is more noteworthy is that against the backdrop of the foundation cutting operational expenses and the market's high-profile accumulation of ETH, the narrative focus of Ethereum is shifting from "institutional incentives" to "market consensus," and the tension between technological push and capital will is being played out simultaneously.

Overall, EF's current cost reduction and efficiency enhancement strategy is both a manifestation of fiscal prudence and reflects its redefinition of its own role boundaries. In the context of the ongoing evolution of Decentralization governance, the collaborative relationship among foundations, technology companies, capital institutions, and developer communities is also moving towards a more complex but potentially more efficient new phase.