Investment Policy Statements: Ending Misalignment and Empowering Long-term Vision in Decentralised Organisations

As DeFi matures and crypto adoption accelerates, the need for structure and transparency has never been greater. This applies not only to protocol development, but also to how capital is deployed across the ecosystem.

A clear example of this shift is the Ethereum Foundation’s (EF) growing involvement in DeFi. While Ethereum remains the leading platform for decentralized finance, some observers have criticized the EF for its previously hands-off approach. Its recent move toward more structured, transparent engagement has been welcomed by many long-time supporters.

To support this shift, the Ethereum Foundation adopted an Investment Policy Statement (IPS) to align internal and external stakeholders, guide onchain asset management, and promote sustainable ecosystem growth. kpk worked closely with the EF to develop this IPS. Other DAOs that have worked with kpk to craft their own IPS include ENS and Balancer.

While this has become a core part of kpk’s asset management methodology, is an IPS necessary for every organization managing an onchain treasury?

Investment Policy Statements

kpk describes IPSs as “a singular living document that captures an organisation’s positions and policies on major questions of investment.”

In layman’s terms, an IPS can be considered a rule book that is meant to guide organizations through treasury management.

This ensures that treasury funds are used in a calculated manner and that the right people are held responsible if any issues arise.

To increase transparency and prevent misalignment, kpk advises that organizations publicly approve their IPS in a manner fitting to the organization, be that a board resolution, a governance proposal or a social process of deliberation.

The Importance of Asset Management

kpk’s IPS development process caters to each of its clients, but centers around the idea that all strong investment practices bear some similarities.

Some of these include: defined organizational roles; terms, expectations and goals for the treasury; a clear understanding of acceptable investment practices; and agreement about how treasury assets should be accounted for.

Outside of the organization's vision and member roles, this can be simplified as effective asset management, which kpk formulates with their own methodology:

In December 2024, kpk — as part of the Uniswap Treasury Working Group — published a comprehensive research report for the Uniswap DAO, which made clear how the mobilisation of the DAO’s treasury can help to achieve its core goals of growth and sustainability.

For Uniswap DAO’s treasury management in particular, this involved the development of an oversight committee to explore the mobilisation of its treasury, including a new accounting and asset allocation framework, a stability fund, and its own in-house IPS.

A major consideration in Uniswap DAO’s case, which may be applicable to many other protocol DAOs, was the appropriate accounting policy for their native token, which makes up the vast majority of the treasury.

Factors such as liquidity and price volatility in particular make it difficult for DAOs like Uniswap to follow traditional corporate accounting methods, and often mean the realisable value of the treasury’s assets will be much lower than their market value.

For Uniswap DAO, the conclusion was that its own accounting policies should consider several different accounting treatments to properly assess their financial position:

• Nil value should be applied when considering the standalone financial performance of its active treasury.
• Full market value is appropriate when evaluating commitments and outflows paid in UNI tokens.
• Actual realisable value, rather than current market prices, should be considered when evaluating treasury liquidation to fund operations.

IPS Structure

The IPS can be broken down into ten different components:

• Purpose and Scope: Role of the treasury and who the policy applies to.
• Mission Alignment: Treasury goals and alignment with the organization’s values.
• Treasury Objectives: Funding time horizons, targets for reserves, and growth goals.
• Risk Tolerance: Define acceptable levels of asset volatility, protocol risk, counterparty risk, regulatory risk.
• Asset Allocation: Strategic allocation targets for different asset classes, defining acceptable and prohibited assets.
• Liquidity Management: Standardize how much of the treasury can be liquid, and segmentation of funds.
• Governance: decision-making structure, proposal process, and contingency plans.
• Delegation and Custody: Roles and responsibilities for self-custody or external custodians, criteria for manager selection.
• Reporting and Transparency: Financial disclosures and publicly available tools for review such as Dune Analytics dashboards
• Review and Amendments: defining when and how an IPS is reviewed and changed.

Case Studies

kpk’s IPS structure has been implemented across a number of organizations, but the Ethereum Name Service is considered one of its leading case studies.

ENS established an endowment for its treasury in Q1 2023. While the treasury functioned properly for its first year, kpk sought to employ an IPS to optimise the endowment’s processes and facilitate scaling its treasury over time.

The ENS IPS set specific rules to adhere to in the future, which allowed the organization to project its future financial position as opposed to reacting to situations as they arise.

This includes an asset allocation ratio of 60/40 exposure to ETH and stablecoins, a minimum stablecoin holding that could fund three years of DAO runway, and bi-weekly rebalancing triggers.

The ENS IPS also respected ENS's alignment with the success of the Ethereum network. As a result of the IPS, all “unearned revenue” - domain registration fees - on ENS be kept in ETH-neutral strategies, such as liquid staking protocols like RocketPool and Stader.

Rounding Off

2025 has the makings of a landmark year for DeFi adoption, with entities such as Robinhood leaning into tokenization and launching a permissionless Ethereum Layer 2, and the Securities and Exchanges (SEC) dropping many of its previous investigations and legal actions against DeFi protocols. However, the sector is still in the early phases of mainstream adoption, and there is still a stark contrast between DeFi organizations and traditional market expectations.

In order to scale with DeFi and compete in its everchanging landscape, organizations that define clear investment policies position themselves for a safe and prosperous future.