Author: Miles Jennings, Head of Policy and General Counsel at a16z crypto; Translated by: AIMan@Jinse Finance
It's time for the crypto industry to move beyond its foundation model. Foundations—non-profit organizations supporting blockchain network development—were once a wise and legitimate path to progress. But today, ask any blockchain network founder, and they'll tell you: nothing slows you down more than a foundation. Now, the friction caused by foundations exceeds that of decentralization.
With the emergence of new regulatory frameworks from the U.S. Congress, the cryptocurrency industry has a rare opportunity to shed its foundations and friction, and build on better coordination, accountability, and scale.
After exploring the origins and shortcomings of foundations, I will discuss how crypto projects can abandon foundation structures and instead leverage standard developer companies to utilize emerging regulatory frameworks and approaches. Throughout the text, I will explain how companies can better allocate capital, attract top talent, and respond to market forces, making them a superior vehicle for driving structural adjustments, growth, and impact.
An industry seeking to scale and challenge big tech companies, big banks, and big governments cannot rely on altruism, charitable funding, or vague directives. Industry scaling depends on incentive mechanisms. If the cryptocurrency industry wants to deliver on its promise, it must mature and shed structural crutches that no longer apply.
Foundations: Necessary Until Now
So, how did cryptocurrency initially form the foundation model?
In the early days of cryptocurrency, many founders turned to non-profit foundations out of sincere belief, thinking these entities would help promote decentralization. The purpose of foundations was to act as neutral managers of network resources, holding tokens and supporting ecosystem development without direct commercial interests. In theory, foundations were best suited to promote credible neutrality and long-term public interest. To be fair, not all foundations are problematic. Some foundations, like the Ethereum Foundation, brought gospel to the growth and development of their supported networks, with dedicated staff working challenging and extremely valuable tasks under constraints.
However, over time, regulatory dynamics and increasingly fierce market competition have caused the foundation model to deviate from its original conception. The SEC's decentralization test based on effort level complicated matters—encouraging founders to abandon, conceal, or otherwise disengage from the networks they created. Increasingly fierce competition further incentivized projects to view foundations as a shortcut to decentralization. In this context, foundations now often serve as a complex workaround: transferring power and ongoing development work to an "independent" entity in hopes of avoiding securities regulation. While this approach is reasonable in the face of legal battles and regulatory hostility, it also makes the flaws of foundations impossible to ignore—they often lack coherent incentive mechanisms, are structurally unoptimized for growth, and consolidate centralized control.
As congressional proposals gradually shift towards a control-based maturity framework, foundation separation and fiction are no longer necessary. The control-based framework encourages founders to relinquish control without forcing them to abandon or conceal ongoing construction. Compared to the effort-based framework, it also provides a clearer (and more easily abused) definition of decentralization to build upon.
With pressure relieved, the industry can finally move beyond expedients and construct structures more conducive to long-term sustainability. Foundations were useful, but they are no longer the best tools for addressing the future.
The Myth of Foundation Incentive Alignment
Supporters argue that foundations have a closer connection with token holders because they have no shareholders and can focus on maximizing network value.
But this theory overlooks how organizations actually operate. Eliminating company equity-based incentive mechanisms does not eliminate misalignment; it often institutionalizes it. Foundations lacking profit motives lack clear feedback loops, direct accountability, and market constraints. The foundation funding model is a sponsorship model: tokens are allocated and then sold for fiat currency, with no clear mechanism linking expenditures to outcomes.
Spending other people's money without accountability rarely produces optimal results.
Accountability is embedded in corporate structures. Companies are constrained by market laws: they invest capital in pursuit of profit, and financial results—revenue, profit margins, and return on investment—are objective indicators of these efforts' success. In turn, shareholders can assess performance and apply pressure when management fails to achieve clear objectives.
In contrast, foundations are typically established to operate indefinitely, incur losses, and face no consequences. Because blockchain networks are open and permissionless, and often lack clear economic models, converting foundation efforts and expenditures into value capture is nearly impossible. Thus, crypto foundations cannot respond to market forces that require difficult decisions.
Aligning foundation staff with the network's long-term success is another challenge. Foundation staff incentives are weaker than corporate staff incentives because they typically receive only a combination of tokens and cash (funded from foundation token sales), rather than a combination of tokens, cash (funded from equity sales), and equity. This means foundation staff incentives are easily influenced by short-term public token price volatility, while corporate staff incentives are more stable and long-term. However, bridging this gap is not easy—successful companies can continuously grow and provide ongoing benefits for employees, while successful foundations cannot. This makes maintaining alignment difficult and may lead foundation staff to seek external opportunities, raising concerns about potential conflicts of interest.
Foundations Are Constrained by Legal and Economic Limitations
Foundations not only have distorted incentive mechanisms but are also constrained by legal and economic restrictions.
Many foundations are legally unable to construct related products or engage in various commercial activities—even if these activities could significantly promote network development. For example, most foundations are prohibited from operating consumer-facing for-profit businesses, even if such a business generates substantial transaction flow for the network and creates value for token holders.
The economic realities foundations face also distort strategic decisions. Foundations bear the direct costs of their efforts, while their returns (if any) are dispersed and socialized. This distortion, combined with a lack of clear market feedback, makes effective resource allocation more difficult, including for employee compensation, long-term risk projects, and short-term seemingly beneficial projects.
This is not the recipe for success. Successful networks depend on developing a range of products and services—middleware, compliance services, developer tools, and so on—which for-profit companies are better equipped to provide. Even with the Ethereum Foundation's many advances, who would argue that Ethereum would be better without all the products and services developed by the for-profit company ConsenSys?
Foundations' opportunities to drive value may become even more limited. The currently (and justifiably) proposed market structure legislation focuses on the economic independence of tokens relative to any centralized organization, requiring value to come from the network's programmatic operation (for example, how ETH appreciates under EIP-1559). This means neither companies nor foundations can support token value through off-chain profitable businesses—such as FTX using its exchange profits to buy and burn FTT to support FTT's value. This makes sense because these centralized controlled value binding mechanisms introduce trust dependencies, which are hallmarks of securities (when FTX collapsed, FTT's price also fell). However, prohibiting such mechanisms also eliminates potential paths to market-based accountability (by generating revenue through off-chain businesses).
Foundation Leads to Operational Inefficiency
Besides legal and economic constraints, foundations also cause severe operational inefficiency. Any foundation founder knows that to meet formal, typically executive separation requirements, dismantling an efficiently operating team comes at a high cost. Engineers focused on protocol development usually collaborate daily with business development, go-to-market, and marketing teams—however, under a foundation structure, these functional departments operate in silos.
When addressing these structural challenges, entrepreneurs are often troubled by absurd issues they never anticipated would become problems: Can foundation staff use the same Slack channel as company staff? Can organizations share roadmaps? Can employees even attend the same off-site meeting? In fact, these issues are irrelevant to decentralization, but they bring real costs: artificial barriers between interdependent functional departments slow development, suppress coordination, and ultimately reduce product quality for everyone.
Foundations Have Become Centralized Gatekeepers
In many cases, the expected role of crypto foundations has significantly deviated from their original mission. Numerous examples show that foundations are no longer focused on decentralized development but have been granted increasing control—transforming them into centralized actors controlling fund keys, critical operational functions, and network upgrade rights. In many instances, foundations lack genuine accountability to token holders; even if token holder governance can replace foundation directors, it merely replicates the common principal-agent problems in corporate boards, with even fewer recourse tools.
To make matters worse, most foundations require up to $500,000 to establish and months of collaboration with numerous lawyers and accountants. This not only slows innovation but makes costs prohibitive for small startups. The situation has become so dire that it's increasingly difficult to find lawyers with experience establishing foreign foundations, as many have abandoned their practice. Why? Because they now simply collect fees as professional board members for dozens of crypto foundations.
In summary, many projects ultimately fall into a "shadow governance" of vested interests: tokens may nominally represent network "ownership," but foundations and their hired directors are truly at the helm. These structures are increasingly incompatible with proposed market structure legislation that encourages on-chain, more accountable, control-eliminating systems rather than more opaque, merely decentralized off-chain structures—for consumers, eliminating trust dependency is far better than merely hiding trust dependency. Mandatory disclosure obligations will also increase transparency in existing governance structures, applying massive market pressure on projects to eliminate control rather than hand it to a few irresponsible individuals.
A Better, Simpler Alternative: Companies
[The rest of the translation continues in the same professional and accurate manner, maintaining the original text's tone and technical nuance.]This incentive mechanism not only helps fund participants' contributions but also prevents the protocol layer from being commoditized (where system value accumulates outside the protocol technology stack, such as the client layer). Solving incentive problems programmatically helps enhance the decentralized economy of the entire system.
In summary, these tools offer more flexibility, accountability, and durability than foundations, while allowing DAOs and networks to retain true sovereignty.
Implementation: DUNA and BORG
Two emerging methods—DUNA and BORG—provide simplified approaches to implementing these solutions while eliminating infrastructure overhead and opacity.
Decentralized Unincorporated Nonprofit Association (DUNA) grants DAOs legal personality, enabling them to sign contracts, hold property, and exercise legal rights—functions traditionally handled by foundations. However, unlike foundations, DUNA does not require establishing headquarters abroad, creating independent oversight committees, or building complex tax structures.
DUNA creates a legal authority without legal hierarchy—serving purely as a neutral executive agent for DAOs. This minimalist structure reduces administrative overhead and centralization friction while enhancing legal clarity and decentralization. Additionally, DUNA can provide effective limited liability protection for token holders, an increasingly important area of focus.
In summary, DUNA provides a powerful mechanism to enforce incentives within networks, enabling DAOs to contract with development companies to provide services. It also allows DAOs to exercise these rights through recovery, performance-based payments, and preventing exploitation—while maintaining the DAO's status as the ultimate authority.
Cybernetic Organization (BORG) Tools, developed for autonomous governance and operations, enable DAOs to migrate many "governance conveniences" currently handled by foundations—such as grant programs, security committees, and upgrade committees—to on-chain operations. By operating on-chain, these sub-structures can run transparently under smart contract rules: providing permissioned access when necessary, with accountability mechanisms hard-coded. Overall, BORG tools can minimize trust assumptions, enhance accountability protection, and support tax-efficient structures.
DUNA and BORG together transfer power from informal off-chain institutions like foundations to more accountable on-chain systems. This is not merely a conceptual preference but a regulatory advantage. Proposed market structure legislation requires "functional, administrative, documentary, or departmental actions" to be processed through decentralized, rule-based systems rather than opaque, centrally controlled entities. By adopting DUNA and BORG structures, crypto projects and development companies can meet these standards without compromise.
Foundations have guided the cryptocurrency industry through stringent regulatory periods. They have also facilitated incredible technological breakthroughs and achieved unprecedented coordination levels. In many cases, foundations filled critical gaps other institutions could not. Many foundations may continue to thrive. But for most projects, their utility is limited—merely a stopgap against regulatory hostility.
That era is ending.
Emerging policies, shifts in incentive mechanisms, and industry maturation all point in the same direction: genuine governance, genuine collaboration, and genuine systems. Foundations lack the ability to meet these needs. They distort incentive mechanisms, hinder scalability, and consolidate centralized power.
A system's durability does not stem from trusting good actors but from ensuring each actor's self-interest is closely tied to the overall success. This is why enterprise architectures have flourished for centuries. In the cryptocurrency realm, we also need similar architectures that allow public interests to coexist with private enterprises, embed accountability, and minimize control by design.
The next era of cryptocurrency will not be built on stopgap measures. It will be built on scalable systems—with genuine incentives, genuine accountability, and genuine decentralization.
