Article | a16z
Written by | Miles Jennings
Translated by | Portal Labs
Crypto foundations—non-profit organizations that support the development of blockchain networks—were once a clever legal path to drive industry development. However, today, any founder who has initiated a network will candidly admit: crypto foundations have become the biggest obstacle to development. In the process of decentralization, the friction they create far exceeds their contributions.
As a new regulatory framework emerges from the U.S. Congress, the crypto industry faces a rare opportunity: to abandon the crypto foundation model and its derived frictions, rebuilding the ecosystem with mechanisms that clarify responsibilities and promise scalability.
After analyzing the origins and defects of the crypto foundation model below, I will argue how crypto projects can replace the crypto foundation structure with conventional development companies, leveraging emerging regulatory frameworks. This article will illustrate the superiority of corporate structures in capital allocation, talent absorption, and market responsiveness—only this path can achieve structural collaboration, scale growth, and substantive impact.
In an industry aspiring to challenge tech giants, financial behemoths, and governmental systems, can it rely on altruism, charitable funds, or vague missions? Scale effects arise from incentive mechanisms. If the crypto industry is to fulfill its promise, it must break free from structures that are no longer applicable.
The historical mission and temporal limitations of the crypto foundation
Why did the crypto industry choose the crypto foundation model?
Its roots lie in the decentralized idealism of early founders: non-profit crypto foundations aim to act as neutral managers of network resources, avoiding commercial interference by holding tokens and supporting ecological development. Theoretically, this model can best achieve credible neutrality and long-term public value. Objectively, not all crypto foundations are incapacitated; for example, the Ethereum Foundation has promoted network development under its support, and its members have accomplished valuable pioneering work under strict constraints.
However, over time, increasing regulatory dynamics and market competition have caused the crypto foundation model to drift from its original intent:
The SEC's behavioral testing dilemma. "Decentralized testing based on development behavior" complicates matters—forcing founders to abandon, blur, or evade their participation in their own networks.
Shortcut thinking under competitive pressure. Project parties view the crypto foundation as a decentralized shortcut tool.
Regulatory evasion channels. The crypto foundation has become an "independent entity" for shifting responsibilities, essentially becoming a circumvention strategy for securities regulation.
Although this arrangement is reasonable during legal confrontations, its structural flaws can no longer be ignored:
Lack of incentive collaboration: absence of coherent interest coordination mechanisms
Inability to optimize growth: structurally incapable of achieving scalable expansion optimization
Consolidation of control: ultimately forming a new type of centralized control
As congressional proposals advance towards a maturity framework based on control, the facade of separation in crypto foundations is no longer necessary. This framework encourages founders to transfer control without needing to relinquish construction participation, while providing clearer (and less prone to abuse) decentralized building standards than behavioral testing frameworks.
When this pressure is lifted, the industry can finally abandon makeshift measures and shift to a long-term sustainable structure. Crypto foundations once fulfilled their historical mission, but they are not the best tool for the next stage.
The myth of incentive collaboration in crypto foundations
Supporters claim that crypto foundations can better collaborate with token holders' interests, as they are free from shareholder interference and focused on maximizing network value.
However, this theory overlooks the actual operational logic of organizations: eliminating equity incentives for companies has not resolved misalignment of interests but has institutionalized it. The lack of profit motivation leads crypto foundations to miss clear feedback mechanisms, direct accountability, and market constraints. The funding of crypto foundations effectively serves as a shelter model: once tokens are allocated and monetized, there is no clear mechanism linking expenditures to outcomes.
When others' funds are governed in low-accountability environments, optimization of benefits is nearly impossible.
Corporate structures inherently incorporate accountability mechanisms: companies are bound by market rules. To profitably allocate capital, financial metrics (revenue, profit margins, return on investment) objectively measure effectiveness. When management fails to meet targets, shareholders can assess and exert pressure.
In contrast, crypto foundations are typically set up for perpetual loss-making operations without consequences. Because blockchain networks are open and permissionless and often lack clear economic models, mapping the efforts and expenditures of crypto foundations to value capture is nearly impossible. As a result, crypto foundations are isolated from the market realities that require hard decision-making.
Coordinating long-term success between crypto foundation employees and the network is more challenging: their incentives are weaker than those of company employees, as their compensation is merely a combination of tokens and cash (from the crypto foundation's token sales), rather than the combination of tokens + cash (from equity financing) + equity enjoyed by company employees. This means crypto foundation employees are subject to extreme volatility in token prices, having only short-term incentives, while company employees enjoy stable long-term incentives. Bridging this gap is fraught with challenges. Successful companies continuously enhance employee benefits through growth, but successful crypto foundations cannot. This leads to difficulties in coordination, making crypto foundation employees more likely to seek external opportunities, breeding conflicts of interest.
The legal and economic constraints of crypto foundations
Crypto foundations not only suffer from distorted incentives but also face capacity constraints legally and economically.
Most crypto foundations have no legal authority to develop peripheral products or engage in commercial activities, even if such initiatives could significantly benefit the network. For instance, the vast majority of crypto foundations are prohibited from operating consumer-facing profit-oriented businesses, even if such businesses could generate considerable trading volume for the network and thus create value for token holders.
The economic realities faced by crypto foundations also distort strategic decision-making: they bear the full costs of efforts, while the benefits (if any) are socially dispersed. This distortion, coupled with a lack of market feedback, leads to inefficient resource allocation, whether in employee compensation, long-term high-risk projects, or short-term superficial benefit projects.
This is not a path to success. The prosperity of a network relies on a diversified product service ecosystem (middleware, compliance services, developer tools, etc.), while companies under market constraints are better at providing such supplies. Even though the Ethereum Foundation has achieved remarkable success, without the profit-oriented products and services built by ConsenSys, how could the Ethereum ecosystem have reached its current prominence?
The space for crypto foundations to create value may further shrink. The proposed market structure bill (which is reasonable) focuses on the economic independence of relatively centralized organizations concerning tokens, requiring that value must stem from the programmatic functions of the network (for example, ETH capturing value through the EIP-1559 mechanism). This means that neither companies nor crypto foundations can support token value through off-chain profit-generating businesses, such as FTX once used exchange profits to buy back and burn FTT to inflate the token price. Such centralized value anchoring mechanisms lead to trust dependency (which is a hallmark of security attributes: the collapse of FTT price due to FTX's downfall), thus the ban is justified; however, it also cuts off potential pathways for market accountability (i.e., realizing value constraints through off-chain business revenue).
The crypto foundation leads to operational inefficiency
In addition to legal economic constraints, crypto foundations also cause significant operational efficiency losses. Any founder who has experienced the structure of crypto foundations is acutely aware of the costs: to satisfy formal (often performative) separation requirements, efficient collaborative teams must be dismantled. Engineers focused on protocol development should collaborate daily with business development and marketing teams. However, under the crypto foundation structure, these functions are forced to separate.
When facing challenges related to this type of structure, entrepreneurs often fall into absurd dilemmas:
Can employees of crypto foundations and company employees coexist, for example, in a Slack channel?
Can two organizations share a development roadmap?
Can employees participate in the same offline meeting?
In fact, these issues are not related to the essence of decentralization, but they bring about real losses: artificial barriers between dependent functions delay development progress, hinder collaborative efficiency, and ultimately lead to all participants bearing the consequences of deteriorated product quality.
The crypto foundation has become a gatekeeper for centralization
The actual functions of crypto foundations have seriously deviated from their initial positioning. Numerous cases show that crypto foundations are no longer focused on decentralized development; they are instead entrusted with increasingly expansive control—evolving into centralized entities that control treasury keys, key operational functions, and network upgrade permissions. In most cases, crypto foundations lack substantive accountability to token holders; even if token governance can replace crypto foundation directors, it merely replicates the principal-agent problem of corporate boards, with even scarcer recourse tools.
The problem is even more pronounced: most crypto foundations require over $500,000 to establish and take months, accompanied by lengthy processes involving lawyers and accountants. This not only hampers innovation but also sets a cost barrier for startups. The situation has deteriorated to the point where it is increasingly difficult to find lawyers experienced in setting up foreign crypto foundation structures, as many have abandoned their practices—they now serve merely as professional board members charging fees for dozens of crypto foundations.
In summary, many projects fall into the "shadow governance" of vested interest groups: tokens merely symbolize nominal ownership of the network, while the actual stewards are the crypto foundation and its hired directors. This structure increasingly clashes with emerging market structure legislation, which encourages on-chain accountability systems (eliminating control) rather than merely decentralized control through opaque off-chain structures (for consumers, eradicating trust dependency is far superior to hiding reliance). Mandatory disclosure obligations will also enhance the transparency of current governance, forcing project parties to eliminate control rather than entrust it to a few individuals with unclear responsibilities.
A better solution: corporate structure
In a scenario where founders do not need to abandon or hide their ongoing contributions to the network and only need to ensure no one controls the network, the crypto foundation will lose its necessity for existence. This opens the path for a better structure—one that supports long-term development, coordinates incentives among all participants, and meets legal requirements.
In this new paradigm, conventional development companies (i.e., enterprises building networks from concept to reality) provide a better vehicle for the ongoing construction and maintenance of the network. Unlike crypto foundations, companies can:
Efficient capital allocation
Attracting top talent by providing incentives beyond tokens
Responding to market forces through feedback loops
Corporate structures inherently align growth with substantive impact, without relying on charitable funds or vague missions.
However, concerns about companies and incentive collaboration are not unreasonable: when a company continues to operate, the potential for network value appreciation to benefit both tokens and equity indeed raises real complexities. Token holders reasonably worry that certain companies may design network upgrade plans or retain specific privileges and licenses to prioritize their equity over token value benefits.
The proposed market structure bill provides assurances for these concerns through its decentralization legal constructs and control mechanisms. However, ensuring incentive collaboration will remain necessary—especially when long-term projects deplete initial token incentives. The concerns about incentive collaboration arising from the lack of formal obligations between companies and token holders will also persist: legislation neither creates nor allows for a statutory fiduciary duty to token holders, nor does it grant token holders enforceable rights regarding the company's continued efforts.
Yet these concerns can be alleviated and do not constitute a valid reason to continue the crypto foundation model. These concerns also do not require tokens to be injected with equity attributes—i.e., a statutory claim to ongoing efforts from developers—otherwise, it would undermine the regulatory basis distinguishing them from ordinary securities. Instead, these concerns highlight the need for tools: ongoing collaborative incentives through contractual and programmatic means, without compromising execution efficacy and substantive impact.
New applications of existing tools in the crypto field
The good news is that incentive collaboration tools already exist. The only reason they have not been popularized in the crypto industry is that using these tools under the SEC's behavioral testing framework would trigger more stringent scrutiny.
However, based on the proposed control framework in the market structure bill, the effectiveness of the following mature tools will be fully realized:
Public Benefit Corporation (PBC) structure
Development companies can register or transform into Public Benefit Corporations (PBC), embedding a dual mission: profit while pursuing specific public benefits—namely, supporting network development and health. PBCs grant founders legal flexibility to prioritize network development, even if it may not maximize short-term shareholder value.
Network profit-sharing mechanisms
Networks and Decentralized Autonomous Organizations (DAOs) can create sustainable incentive structures for businesses through shared network profits.
For example: networks with inflationary token supplies can allocate part of the inflation tokens as profits to companies, while also calibrating the total supply through a buyback and burn mechanism based on profits. When designed properly, such profit-sharing can direct most value towards token holders and establish a lasting direct connection between the success of the company and the health of the network.
Milestone attribution mechanisms
The lock-up of tokens by the company (i.e., restrictions on employees and investors selling in the secondary market) must and should be tied to meaningful network maturity milestones. Such milestones may include:
Network usage threshold
Successful key network upgrades (such as The Merge)
Decentralization metrics (such as reaching specific control standards)
Ecosystem growth objectives
The current market structure bill proposes such mechanisms: restricting internal personnel (such as employees and investors) from selling in the secondary market before the token achieves economic independence (i.e., before the network token forms its own economic model). These mechanisms ensure that early investors and team members have strong incentives to continue building the network, preventing them from arbitraging before the network matures.
Contract safeguard clauses
DAOs should and can negotiate contract agreements with companies to prevent network exploitation behaviors that harm the interests of token holders, including:
Non-compete clauses
License agreements ensuring open access to intellectual property
Transparency obligations
No token recourse
Payment termination rights in case of harm to the network
Programmatic incentive systems
When network participants (excluding the development company) receive reasonable incentives, token holders will gain stronger protection:
Client operators (based on network construction/expansion/diversification)
Infrastructure providers (maintaining the network)
Supply and demand providers (enhancing market depth for all network users)
Incentives should be obtained through programmatic token distribution corresponding to contribution levels.
Such incentives not only fund participants' contributions but also prevent commodification at the protocol layer (system value being captured by the technology stack non-protocol layer, such as client layer). Programmatic solutions to incentive issues help solidify the decentralization economy of the entire system.
In summary, these tools provide better flexibility, accountability, and durability than crypto foundations, while ensuring that DAOs and networks retain true sovereignty.
Implementation plan: DUNA and BORG structures
Two emerging solutions: DUNA and BORG, provide efficient paths for implementing the above solutions while eliminating the redundant costs and opacity of the crypto foundation structure.
Decentralized Non-Profit Association (DUNA)
DUNA grants DAOs legal entity status, enabling them to enter contracts, hold assets, and enforce statutory rights. These functions are traditionally fulfilled by crypto foundations. However, unlike foundations, DUNA does not require operational distortions, such as offshore registered headquarters, discretionary supervisory committees, or complex tax structures.
DUNA creates legal capabilities without generating legal hierarchies, purely serving as a neutral execution proxy for DAOs. This minimalist structure reduces administrative burdens and centralization frictions while enhancing legal clarity and decentralization. Furthermore, DUNA can provide effective limited liability protection for token holders.
Overall, DUNA provides a strong mechanism to enhance network incentive collaboration: enabling DAOs to contract with development companies for services, and implementing rights through recourse, performance payments, and anti-exploitation protections, while ensuring that DAOs always retain ultimate authority.
Cybernetic Organization (BORG) tools
BORG, as a governance and operational technology, allows DAOs to transfer the "governance conveniences" currently handled by crypto foundations, such as funding plans, security committees, and upgrade committees, to run on-chain. These substructures operate transparently under smart contract rules: permissions can be set as needed, but accountability mechanisms are hard-coded and solidified. BORG tools can minimize trust assumptions, enhance responsibility protection, and support tax optimization structures.
DUNA and BORG together transfer power from informal off-chain entities like foundations to more accountable on-chain systems. This is not just a philosophical preference but also a regulatory advantage. The proposed market structure bill requires that "functional, administrative, transactional, or procedural actions" must be processed through decentralized rule systems, rather than opaque centralized entities. Crypto projects and development companies adopting DUNA and BORG structures can uncompromisingly meet these standards.
Summary
Crypto foundations once guided the crypto industry through a regulatory winter, facilitating technological breakthroughs and achieving unprecedented collaboration. When other structures failed, crypto foundations often filled critical vacuums. Some crypto foundations may continue to exist, but for most projects, their value has become marginal—their role merely a temporary solution to counter regulatory hostility.
This era is coming to an end.
Emerging policies, transformations in incentive structures, and industry maturity point towards the same future:
Real governance
Substantive collaboration
Systematic operation
The crypto foundation is unable to meet these needs: it distorts incentives, hinders scaling, and solidifies centralization.
The sustainability of the system does not rely on the self-discipline of the benevolent, but needs to deeply anchor each participant's self-interest with overall success. This is the foundation of the prosperity of corporate systems for centuries. The crypto field urgently needs a similar framework—coexistence of public welfare and private interests, accountability internalized, and minimized control through design.
The new era of crypto is not built on makeshift measures but will be constructed on a scalable system with real incentives, real accountability, and real decentralization.
