a16z: The End of the Crypto Assets Foundation Era

Say goodbye to expediency and welcome true Decentralization.

Written by: Miles Jennings, Head of Policy and General Counsel at a16z crypto

Compiled by: Luffy, Foresight News

It's time for the crypto industry to move away from the foundation model. As non-profit organizations supporting the development of blockchain networks, foundations used to be a clever legal path to promote industry growth. But today, any founder who has launched a crypto network will tell you: nothing holds back progress more than foundations. The friction caused by foundations has far outweighed the additional value of Decentralization.

With the introduction of the new regulatory framework by the US Congress, the cryptocurrency industry has welcomed a rare opportunity: to say goodbye to foundations and instead build a new system with better incentive mechanisms, accountability mechanisms, and scaling methods.

After discussing the origins and flaws of foundations, this article will elaborate on how cryptocurrency projects abandon the foundation structure in favor of embracing ordinary development companies, leveraging emerging regulatory frameworks for growth. I will explain one by one why companies are better at allocating capital, attracting top talent, and responding to market forces, making them a superior vehicle for promoting structural incentive compatibility, growth, and impact.

An industry attempting to challenge big tech companies, big banks, and big governments cannot rely on altruism, charitable funding, or vague missions. The scaled development of the industry needs to rely on incentive mechanisms. If the crypto industry wants to fulfill its promises, it must break free from structural crutches that are no longer applicable.

The foundation was once a necessary choice

Why did the crypto industry initially choose the foundation model?

In the early days of the cryptocurrency industry, many founders sincerely believed that non-profit foundations would help promote Decentralization. The foundation was supposed to act as a neutral manager of network resources, holding tokens and supporting ecological development without mixing in direct commercial interests. Theoretically, foundations are an ideal choice for promoting trusted neutrality and long-term public interest. To be fair, not all foundations have issues. For example, the Ethereum Foundation has made significant contributions to the development of the Ethereum network, and its team members have accomplished challenging and highly valuable work under constraints.

However, with the passage of time, regulatory dynamics and intensified market competition have caused the foundation model to gradually deviate from its original intention. The U.S. Securities and Exchange Commission (SEC)'s decentralized testing based on "effort level" further complicates the situation, encouraging founders to abandon, conceal, or avoid participating in the networks they create. Increased competition has further prompted projects to see foundations as a shortcut to decentralization. In such cases, foundations are often reduced to a stopgap measure: by transferring power and ongoing development efforts to "independent" entities, in the hope of circumventing securities regulation. While this approach makes sense in the face of legal games and regulatory hostility, foundations are flawed by the fact that they often lack coherent incentives, inherently fail to optimize growth, and entrench centralized control.

As the congressional proposal shifts towards a maturity framework based on "control", the separation and fiction of the foundation are no longer necessary. This framework encourages founders to relinquish control without forcing them to abandon or conceal subsequent development work. Compared to the framework based on "effort", it also provides a clearer definition for Decentralization.

As the pressure eases, the industry can finally say goodbye to stopgap measures and shift towards a structure that is more suitable for long-term sustainability. The foundation has its historical role, but it is no longer the best tool for the future.

The Myth of Foundation Incentives

Supporters believe that the foundation's interests are more aligned with those of the token holders, as it has no shareholders and can focus on maximizing network value.

However, this theory ignores the actual operational logic of organizations. Canceling the company's equity incentives does not eliminate the inconsistency of interests, but often institutionalizes it. Foundations lacking profit motives lack clear feedback loops, direct accountability mechanisms, and market constraints. The financing model of foundations is a sponsorship model: selling tokens for fiat currency, but the use of these funds lacks a clear mechanism to link spending to outcomes.

Using other people's money without having to bear any responsibility rarely produces the best results.

The accountability mechanism is an inherent attribute of the company's structure. Enterprises are constrained by market discipline: capital is spent in pursuit of profit, and financial results (revenue, profit margin, return on investment) are objective indicators of whether efforts are successful. Shareholders can evaluate management performance based on this and apply pressure when targets are not met.

In contrast, foundations typically operate at an indefinite loss without having to face consequences. Because blockchain networks are open and permissionless, they often lack a clear economic model, making it nearly impossible to link the work and expenditures of the foundation to value capture. The result is that crypto foundations are insulated from the real tests of market forces.

Aligning the interests of foundation members with the long-term success of the network is another challenge. The incentive mechanisms for foundation members are weaker than those for company employees, as their compensation typically consists of tokens and cash (from foundation token sales), rather than a combination of tokens, cash (from equity sales), and equity. This means that the incentives for foundation members are more susceptible to the short-term fluctuations in token prices, while company employees have a more stable and long-term incentive mechanism. Addressing this deficiency is not easy; successful companies grow and provide employees with continuously increasing benefits, whereas successful foundations often fail to do so. This makes it difficult to maintain incentive compatibility and may lead foundation members to seek external opportunities, raising concerns about potential conflicts of interest.

Legal and Economic Constraints of the Foundation

The problem with foundations lies not only in the distorted incentive mechanisms but also in the legal and economic constraints that limit their ability to act.

Many foundations are legally unable to build relevant products or engage in certain commercial activities, even if these activities can significantly benefit the network. For example, most foundations are prohibited from operating profitable consumer-facing businesses, even if such businesses can bring a large amount of traffic to the network and enhance the value of the tokens.

The economic realities faced by the foundation have also distorted strategic decision-making. The foundation bears the direct costs of efforts, while the benefits are decentralized and socialized. This distortion, combined with a lack of clear market feedback, makes it more difficult to allocate resources effectively (including employee compensation, long-term high-risk projects, and short-term explicit advantage projects).

This is not the path to success. A successful network relies on the development of a range of products and services, including middleware, compliance services, developer tools, and so on; and companies constrained by market discipline are better at providing these. Even though the Ethereum Foundation has made significant progress, who would think that Ethereum would develop better without the products and services developed by the for-profit company ConsenSys?

The opportunities for the foundation to create value may be further restricted. The proposed market structure legislation currently focuses on the economic independence of tokens relative to any centralized organization, requiring value to stem from the programmatic operation of the network. This means that companies and foundations must not support token value through off-chain profit-making activities, such as how FTX maintained the price of FTT by using exchange profits to buy and burn FTT. This is reasonable because these mechanisms introduce trust dependencies, which is characteristic of securities.

Low operational efficiency of the foundation

In addition to legal and economic constraints, the foundation also causes serious operational inefficiencies. Any founder who has managed a foundation knows the cost of breaking up high-performing teams to meet formal separation requirements. Engineers focused on protocol development often need to collaborate daily with business development, marketing, and promotional teams, but under the foundation structure, these functions are isolated.

Entrepreneurs are often troubled by some absurd questions when dealing with these structural challenges: Can fund employees be in the same Slack channel as company employees? Can the two organizations share a roadmap? Can they participate in the same remote meeting? The fact is that these questions have no substantial impact on Decentralization, but they do incur real costs: the artificial barriers between interdependent functions slow down development speed, hinder coordination, and ultimately reduce product quality.

The foundation has become a centralized gatekeeper

In many cases, the role of cryptocurrency foundations has deviated far from their original mission. Countless examples show that foundations are no longer focused on Decentralization development, but rather have been granted increasing amounts of control, transforming into centralized roles that control the treasury keys, key operational functions, and network upgrade rights. In many instances, foundation members lack accountability mechanisms; even if token holder governance can replace foundation directors, it merely replicates the agency model found in corporate boards.

What makes matters worse is that the establishment of most foundations costs over $500,000 and requires cooperation with a large number of lawyers and accountants for months. This not only slows down the pace of innovation but is also very costly for startups. The situation has become so bad that it is now increasingly difficult to find lawyers with experience in setting up foreign foundations, as many have given up their practice and instead charge fees as board members in dozens of crypto foundations.

In other words, many projects end up with a kind of "shadow governance" dominated by vested interests: tokens may nominally represent "ownership" of the network, but are actually at the helm of the foundation and its hired directors. These structures increasingly conflict with proposed market structure legislation, which rewards on-chain, more responsible, control-removing systems rather than supporting more opaque off-chain structures. For consumers, eliminating trust dependencies is far more beneficial than hiding them. Mandatory disclosure obligations would also bring greater transparency to the current governance structure, creating significant market pressure to remove control of the project rather than handing it over to a few who lack accountability.

A more optimal and simpler alternative: Company

If the founders do not need to give up or hide their continuous efforts for the network, and only need to ensure that no one controls the network, the foundation will no longer be necessary. This opens the door to a better structure - one that can support the long-term development of the network, align the incentives of all participants, and meet legal requirements.

In this new context, ordinary development companies provide a better vehicle for the continuous construction and maintenance of the network. Unlike foundations, companies can efficiently allocate capital, attract top talent through more incentives (beyond tokens), and respond to market forces through feedback loops. Companies are structurally aligned with growth and influence, without relying on charitable funding or vague mandates.

Of course, concerns about the company and its incentive mechanisms are not unfounded. The existence of the company means that the network's value may flow to both the tokens and the company's equity, which brings real complexity. Token holders have reason to worry that a company might prioritize equity over token value by designing network upgrades or retaining certain privileges.

The proposed market structure legislation provides assurances for these concerns through its statutory construction of Decentralization and control. However, ensuring incentive compatibility remains necessary, especially in cases where projects have been operating for a long time and initial token incentives are eventually exhausted. Moreover, the lack of formal obligations between companies and token holders will continue to raise concerns about incentive compatibility: the legislation does not establish a formal fiduciary duty to token holders, nor does it grant token holders enforceable rights to require companies to make ongoing efforts.

However, these concerns can be addressed and are not sufficient to justify the continued adoption of the foundation. These concerns do not require the tokens to have equity characteristics, which would undermine the regulatory treatment foundation that differentiates them from ordinary securities. Instead, they highlight the demand for tools: to achieve incentive compatibility through contracts and programmatic means without compromising execution and influence.

New Uses of Existing Tools in the Cryptocurrency Field

The good news is that incentive-compatible tools already exist. The only reason they haven't become widespread in the crypto industry is that using these tools would incur more scrutiny under the SEC's framework based on "effort level".

However, under the framework of "control" proposed by the market structure legislation, the power of the following mature tools can be fully unleashed:

Public Welfare Enterprises. Development companies can register or transform into public welfare enterprises, which have a dual mission: to pursue profit while achieving specific public interests, namely to support the development and health of the network. Public welfare enterprises provide founders with legal flexibility, allowing them to prioritize network development, even if this may not maximize short-term shareholder value.

Network Revenue Sharing. Networks and Decentralized Autonomous Organizations (DAOs) can create and implement sustainable incentive structures for companies by sharing network revenue. For example, a network with an inflationary token supply can achieve revenue sharing by allocating a portion of the inflationary tokens to the company, while also combining it with a revenue-based buyback mechanism to calibrate the overall supply. A well-designed revenue sharing mechanism can direct most of the value to token holders while establishing a direct and lasting link between the company's success and the network's health.

**Milestone token vesting. **A company's token lock-up (a transfer restriction that prohibits employees and investors from selling tokens on the secondary market) should be tied to a meaningful network maturity milestone. These milestones can include network usage thresholds, successful network upgrades, decentralization initiatives, or ecological growth goals. The current market structure legislation proposes such a mechanism that restricts insiders (such as employees and investors) from selling tokens on the secondary market until the tokens become economically independent (i.e., the network tokens have their own economic model). These mechanisms ensure that early investors and team members have a strong incentive to continue building the network and avoid cashing out before the network matures.

Contract Protection. DAOs should negotiate contracts with companies to prevent the network from being used in ways that harm the interests of token holders. This includes non-compete clauses, licensing agreements that ensure open access to intellectual property, transparency obligations, and the right to reclaim tokens or halt further payments in the event of misconduct that harms the network.

Programmatic Incentives. When network participants receive incentives for their contributions through the programmatic allocation of tokens, token holders will be better protected. This incentive mechanism not only helps to fund participants' contributions but also prevents the commodification of the protocol layer (where system value flows to non-protocol technology stack layers, such as the client layer). Addressing incentive issues in a programmatic way helps to solidify the decentralization economy of the entire system.

These tools together provide greater flexibility, accountability, and durability than the foundation, while allowing the DAO and the network to retain true sovereignty.

Implementation Path: DUNAs and BORGs

Two emerging solutions (DUNA and BORGs) provide streamlined approaches to implementing these solutions while eliminating the complexity and opacity of the foundation structure.

Decentralization Unincorporated Nonprofit Association (DUNA, Decentralized Unincorporated Nonprofit Association)

DUNA grants DAOs legal status, enabling them to enter into contracts, hold property, and exercise legal rights, functions traditionally performed by foundations. However, unlike foundations, DUNA does not require the establishment of a headquarters abroad, the creation of discretionary supervisory committees, or complex tax structuring.

DUNA has created a legal authority that does not require a legal hierarchy, purely acting as a neutral executing agent for the DAO. This minimalist structure reduces administrative burdens and centralization friction while enhancing legal clarity and Decentralization. Additionally, DUNA can provide effective limited liability protection for token holders, an area of increasing concern.

Overall, DUNA provides powerful tools for implementing incentive-compatible mechanisms around the network, enabling DAOs to enter into service contracts with development companies and enforce these rights through token reclamation, performance-based payments, and preventing exploitative behavior, while retaining the ultimate authority of the DAO.

Cybernetic Organization Tooling (BORGs)

The BORGs technology developed for autonomous governance and operations enables DAOs to migrate many "governance convenience functions" (such as funding programs, security committees, upgrade committees) currently handled by foundations on-chain. By going on-chain, these substructures can operate transparently under smart contract rules: permissions can be set for access when necessary, but the accountability mechanisms must be hard-coded. Overall, BORGs tools can minimize trust assumptions, enhance accountability protection, and support tax optimization architectures.

DUNA and BORGs jointly transfer power from informal off-chain entities like foundations to a more responsible on-chain system. This is not only a preference for ideology but also a regulatory advantage. The proposed market structure legislation requires "functional, administrative, clerical, or departmental actions" to be handled through a decentralized, rule-based system rather than through opaque, centralized entities. By adopting the DUNA and BORGs framework, crypto projects and development companies can uncompromisingly meet these standards.

Conclusion: Say goodbye to expediency and welcome true Decentralization

The foundation has led the cryptocurrency industry through difficult regulatory periods and facilitated some incredible technological breakthroughs and unprecedented levels of collaboration. In many cases, the foundation has filled critical gaps when other governance structures have failed to function, and many foundations may continue to thrive. However, for most projects, their role is limited and serves merely as a temporary solution to regulatory challenges.

Such an era is coming to an end.

Emerging policies, changing incentive structures, and industry maturity all point in the same direction: towards true governance, true incentive compatibility, and true systematization. Foundations are unable to meet these demands; they distort incentives, hinder scaling, and entrench centralized power.

The survival of the system does not depend on trusting "good people", but on ensuring that the self-interest of each participant is meaningfully tied to the overall success. That's why the company structure has endured for hundreds of years. The crypto industry needs a similar structure: where the public interest coexists with the private sector, accountability is embedded in it, and control is minimized by design.

The next era of cryptocurrency will not be built on expediency, but on scalable systems: systems that have real incentives, real accountability mechanisms, and real Decentralization.