This article comes from: a16z Crypto
Compiled by Odaily Planet Daily ( @OdailyChina ); Translated by Azuma ( @azuma_eth )
It’s time for the cryptocurrency industry to move away from the foundation model. Foundations — nonprofit organizations that support the development of blockchain networks — were once a clever legal way to advance the industry. But today, as any founder who has launched a network project will tell you, “there is nothing more detrimental than this.”
Today, the foundation model creates far more obstacles than the decentralized convenience it brings.
As the U.S. Congress proposes a new regulatory framework, the cryptocurrency industry has a rare opportunity to move away from foundations and the impediments they bring — a chance to build with greater consistency, accountability, and scale.
After analyzing the origins and flaws of foundations, I will explore how crypto projects are adapting to emerging regulatory frameworks and approaches by abandoning foundation structures and instead leveraging common development companies. I will explain why companies are a better vehicle for driving structural consistency, growth, and impact by allocating capital more efficiently, attracting top talent, and responding to market forces.
An industry designed to challenge Big Tech, big banks, and government regulation cannot rely on altruism, philanthropic funding, or a vague mission . Industries scale on incentives. If crypto is to live up to its promise, it must break free of structural crutches that no longer serve its purpose.
Foundation: Once a Necessary Choice
So why did cryptocurrencies adopt the foundation model in the first place?
In the early days of the crypto industry, many founders chose non-profit foundations out of a belief that these entities could promote the decentralization of their projects. Foundations are supposed to be neutral stewards of network resources, holding tokens and supporting ecosystem development without engaging in direct commercial interests. In theory, foundations help achieve credible neutrality and long-term public interest. To be fair, not all foundations are problematic. The Ethereum Foundation, for example, has played a positive role in the growth and development of the network it supports, and its members have done valuable work under difficult conditions.
But over time, regulatory dynamics and increasingly competitive markets have derailed the foundation model. The SEC’s “development effort”-based decentralization test complicates the situation further, encouraging founders to abandon, obscure, or circumvent their involvement in the networks they create; fierce competition further encourages projects to view foundations as a shortcut to decentralization. Under these conditions, foundations are now often just a roundabout workaround: circumventing securities regulation by transferring power and ongoing development work to an “independent” entity. While this approach makes sense in the face of legal pressure and regulatory hostility, it also exposes the flaws of foundations—they often lack aligned incentives and are not structurally optimized for growth, but instead consolidate centralized control.
As the US Congressional proposals move toward a mature framework based on “control,” the separation and fiction of the foundation is no longer necessary. A framework based on “control” encourages founders to relinquish control of the project without being forced to evade or conceal their continued construction of the project. It provides a clearer (and less prone to abuse) definition of decentralization as a goal to build upon than a framework based on “development effort.”
With this pressure lifted, the industry can finally move away from the stopgap measures it once was and toward structures more suited to long-term sustainability. Foundations did have a role in the past, but they are no longer the best tool for the future.
Can the Foundation really align its interests with those of token holders?
Proponents of the foundation model argue that foundations are better aligned with the interests of token holders because they have no shareholders and can focus on maximizing the value of the network.
However, this theory ignores how foundations actually operate. Foundations that lack profit motives have no clear feedback mechanism, direct accountability, and market constraints. The foundation’s funding model is essentially a patronage system - tokens are allocated and then converted into fiat currency, and there is no clear link between the expenditure of these funds and the results.
When spending other peoples money without taking any responsibility, few people will pursue maximum benefits.
Corporate structures are inherently accountable, and companies are subject to market forces: they allocate capital in pursuit of profits, and financial performance (revenue, profit margins, and return on investment) objectively reflects operating results. Shareholders can assess performance and apply pressure when management fails to meet clear targets.
In contrast, foundations are often set up to operate at a loss indefinitely without consequence. Because blockchain networks are open and permissionless, and often lack a clear economic model, it is almost impossible to tie foundation input to value capture. In this context, crypto foundations are able to circumvent market realities that require difficult choices.
It is even more difficult to align foundation employees with the long-term success of the network. Foundation employees are less incentivized than corporate employees, and are typically compensated with a combination of tokens and cash (funded by foundation token sales), rather than the “tokens + cash (from equity financing) + equity” combination enjoyed by corporate employees. This means that foundation employees are subject to wild fluctuations in token prices and have shorter incentive cycles, while corporate employees enjoy more stable long-term incentives. However, it is very difficult to make up for this shortcoming - successful companies will continue to grow and create more benefits for their employees, but successful foundations cannot. This difference makes it difficult to maintain consistency of interests, which may prompt foundation employees to seek external opportunities and raise concerns about conflicts of interest.
Legal and economic constraints on foundations
Not only do foundations have distorted incentives, but legal and economic restrictions also constrain their ability to act.
Most foundations are prohibited from developing derivative products or engaging in commercial activities, even if these activities can significantly increase the value of the network. For example, even if a profitable end-business can bring a large amount of transaction traffic to the network and increase the value of the token, most foundations are still prohibited from operating such a business.
The economic realities that foundations face also distort strategic decisions. They bear costs directly, while benefits (if any) are dispersed and shared across the network. This distortion, combined with the lack of market feedback, leads to inefficient allocation of resources—whether it’s staff salaries, long-term high-risk projects, or short-term vanity projects.
This is not the path to success. A successful network ecosystem requires the development of a large number of products and services (middleware, compliance tools, developer kits, etc.), and companies subject to market laws are better at providing these. Even if the Ethereum Foundation has made great achievements, would the Ethereum ecosystem really have developed to its current level without the various products built by the for-profit organization ConsenSys?
The value creation space of the foundation may be further compressed. The proposed market structure bill focuses on the economic independence of tokens from centralized organizations, requiring that value must be derived from the programmatic functions of the network (such as the value accumulation of ETH under the EIP-1559 mechanism). This means that neither companies nor foundations can support the value of tokens through off-chain profitable businesses - for example, FTX used exchange profits to repurchase and destroy FTT to maintain the price of the currency. This restriction is reasonable because centralized control mechanisms introduce trust dependence unique to securities (the collapse of FTX caused the price of FTT to plummet). But while prohibiting such mechanisms, it also closes market-based accountability channels (generating revenue through off-chain businesses).
Inefficient operations caused by the foundation
In addition to legal and economic constraints, foundations also cause serious operational inefficiencies. Any founder who has dealt with a foundation will have experienced that in order to meet the formal (often showy) separation requirements, efficient and collaborative teams have to be broken up. Engineers who focus on protocol development need to maintain daily collaboration with business development and marketing teams - but under the foundation structure, these functions are artificially separated.
Faced with these structural challenges, entrepreneurs are often forced to deal with absurd questions that shouldn’t be obstacles: Can foundation employees share Slack channels with company employees? Can two organizations share development roadmaps? Can employees participate in the same team building? In fact, these questions have nothing to do with decentralization, but they come at a real cost: artificial functional barriers slow down development progress, hinder collaboration, and ultimately damage the product experience for all users.
Foundations Become “Centralized Gatekeepers”
In many cases, the actual role of cryptocurrency foundations has deviated significantly from its original intention. Instead of focusing on decentralized development, many foundations have gained increasing power. They control treasury keys, key operational functions, and network upgrade permissions, and have evolved into new centralized entities. In most cases, foundations lack substantive accountability from token holders; even if there is a token holder governance mechanism to replace foundation directors, it only replicates the agency problem in corporate boards, with fewer means of accountability.
Worse still, it usually costs more than $500,000 and several months to set up a foundation, and it also requires hiring a large number of lawyers and accountants. This not only hinders innovation, but also excludes small teams. The current situation has deteriorated to the point where it is difficult to find lawyers who are familiar with the overseas foundation structure - many have already changed careers. Why? Because they now prefer to be nominal directors of dozens of crypto foundations and easily earn consulting fees.
Ultimately, many projects have developed a shadow governance model of vested interest groups - the token may represent nominal ownership of the network, but the helm is always controlled by the foundation and its hired directors. This structure is contrary to the spirit of emerging market structure legislation, which encourages the elimination of control through on-chain accountability mechanisms rather than simply dispersing control through opaque off-chain structures. For users, it is far better to completely eliminate trust dependence than to hide the controllers. Mandatory disclosure obligations will also increase the transparency of existing governance structures, exerting tremendous market pressure on projects to force them to eliminate control rather than handing it over to a few irresponsible people.
Better solution: Common enterprise architecture
When founders no longer need to give up or hide their ongoing contributions to the network, and only need to ensure that no one person can control the network alone, the foundation loses its necessity. This paves the way for a better structure - one that supports long-term development, aligns incentives, and meets legal requirements.
Under the new regulatory environment, ordinary development companies (builders of networks from conception to implementation) are better vehicles for the continued construction and maintenance of networks. Compared with foundations, enterprises can allocate capital efficiently, attract top talent through a token + equity combination, and adjust strategies in a timely manner through market feedback. Enterprise structures naturally pursue growth and influence without relying on philanthropic funds or vague missions.
Of course, concerns about corporate incentives are not entirely unfounded. When a development company continues to exist, network value may flow to both tokens and company equity, which does introduce more complexity. Token holders have a right to worry that the development company may design network upgrades that favor its own equity or reserve certain privileges.
The proposed market structure legislation provides protection through the legal definition of “decentralization and control”, but ensuring incentive alignment remains a long-term issue, especially as the project operates for a long time and the initial token incentive is exhausted. Concerns about incentive misalignment will continue to exist due to the lack of legal obligations between companies and token holders - the law neither stipulates the companys fiduciary obligations to token holders, nor does it give token holders the right to force companies to continue to contribute.
But these concerns can be solved through technical means, which cannot be a reason to continue the foundation model. We also do not need to give tokens equity attributes, because this will blur the regulatory boundaries between tokens and securities. The real solution is to continuously calibrate incentives through contracts and programmatic tools without compromising execution efficiency and influence.
New opportunities for existing tools
Incentive alignment tools already exist in the cryptocurrency industry, even if they are not widely adopted. The only reason they are not widely adopted is that the SEC’s regulatory framework based on “development efforts” imposes greater scrutiny on them.
According to the control rights framework proposed by market structure legislation, the following mature tools will be able to fully exert their effectiveness:
Public Benefit Corporation (PBC) Structure
Development companies can register or convert to public benefit corporations — companies that have a dual mission of profit-making and promoting a specific public interest (in this case, supporting the growth and health of the network). PBCs give founders legal flexibility to prioritize the growth of the network, even at the expense of short-term shareholder interests.
Network revenue sharing mechanism
Networks and decentralized autonomous organizations (DAOs) can establish continuous incentives through revenue sharing. For example, a network that uses an inflationary token mechanism can allocate a portion of the newly added tokens to the development company, while coordinating the total amount with a revenue-based buyback and destruction mechanism. A well-designed revenue sharing plan can direct most of the value to token holders while establishing a lasting bond between enterprise development and network health.
Milestone unlocking mechanism
The token lock-up (limiting secondary market selling) of companies to employees and investors should be linked to key nodes of network development. These milestones include: network usage thresholds, major upgrades (such as The Merge, etc.), decentralization indicators (reaching specific control standards), ecological growth goals, etc. The current market structure legislation has proposed a similar mechanism, requiring insiders (employees/investors) to prohibit secondary market selling before the network tokens form an independent economic model. Such a design can ensure that early contributors continue to build the network, rather than cashing out and leaving when the ecosystem is immature.
Contractual protection clause
DAOs should enter into agreements with companies to prevent behavior that harms the interests of token holders, including: non-compete clauses, licensing agreements that ensure open intellectual property rights, transparency obligations, and the right to recover unredeemed tokens or suspend payments.
Programmatic incentive system
When network participants (such as client operators, infrastructure maintainers, liquidity providers, etc.) based on protocol development receive contribution rewards through on-chain distribution mechanisms, token holders will be better protected. This design not only funds ecological contributions, but also prevents the value of the protocol layer from being captured by other layers of the technology stack (such as the client layer). Programmatic incentives can strengthen the decentralized economy of the entire system.
Taken together, these tools offer greater flexibility, accountability, and durability than foundations, while ensuring that DAOs and networks remain truly sovereign.
Implementation Path: DUNA and BORG Architecture
Two emerging approaches — DUNA and BORG — offer lightweight implementation paths to the above approaches while avoiding the redundancy and opacity of foundations:
Decentralized Unincorporated Nonprofit Association (DUNA)
This structure gives the DAO legal entity status, enabling it to sign contracts, hold assets, and exercise legal rights (originally done by the foundation). However, unlike the foundation, DUNA does not need to set up a headquarters overseas, form a discretionary supervisory committee, or design a complex tax structure.
DUNA creates a legal authority without a legal hierarchy - acting purely as a neutral executive agent for the DAO. This minimalist structure reduces administrative burden and centralized friction while increasing legal clarity and decentralization. In addition, DUNA can provide token holders with effective limited liability protection, which is becoming an increasingly important need.
Overall, DUNA provides a powerful mechanism for network incentive alignment, enabling DAOs to enter into service agreements with development companies and enforce these rights through terms such as token recovery, performance payments, and anti-exploitative behavior protection - all the while ensuring the DAOs position as the highest decision-making body.
Cybernetic Organization Tool (BORG)
This type of autonomous governance technology can move the foundations governance convenience functions (funding programs, security committees, upgrade committees) to the chain. Through smart contract rules, these substructures can set permissions as needed and have built-in accountability mechanisms. BORG tools can minimize trust assumptions, enhance liability isolation, and optimize tax structures.
The combination of DUNA and BORG transfers power from informal off-chain entities such as foundations to more accountable on-chain systems. This is not only a conceptual advancement - it is also a regulatory advantage. The proposed legislation requires that functional, administrative, and transactional work must be handled through a decentralized system of rules rather than opaque centralized entities. Projects that adopt the DUNA+BORG architecture can meet these standards without compromise.
The End of the Foundation Era
Foundations have guided the cryptocurrency industry through regulatory winters and have enabled amazing technological breakthroughs and unprecedented levels of collaboration. In many cases, foundations have filled critical gaps when other structures have failed. Some foundations may continue to thrive, but for most projects, foundations will always have a limited role—just a temporary solution to regulatory hostility.
The era of foundations is ending.
The evolution of emerging policies, incentive mechanisms, and industry maturity all point to the same direction: real governance, real interest coordination, and real system architecture. Foundations are no longer able to meet these needs — they distort incentives, hinder scalability, and solidify centralized power.
The maintenance of an enduring system does not rely on trust in good faith actors, but on ensuring that the interests of each participant are deeply tied to the success of the whole. This is why corporate structures can last for hundreds of years. The cryptocurrency industry needs a similar structure: one where public welfare goals are aligned with commercial interests, accountability mechanisms are built in, and control can be actively limited.
The next chapter of cryptocurrency will not be built on workarounds, but on scalable systems — systems with real incentives, real accountability, and real decentralization.
