A16z said that cryptocurrency projects should now say goodbye to expediency, embrace true decentralization. Written by Miles Jennings, Head of Policy and General Counsel at a16z crypto. Compiled by Luffy, Foresight News. (Synopsis: Ethereum Foundation announces layoffs & restructuring of R&D team as "Protocol", focusing on 3 strategic goals: expanding L1 and Blobs, improving user UX experience) (Background added: Analysis|How will the Sui Foundation unleash the $160 million frozen from hackers?) It's time for the crypto industry to move away from the foundation model. As a non-profit organization that supports the development of blockchain networks, the Foundation used to be an ingenious and legal way to promote the development of the industry. But these days, any founder who has ever started a crypto network will tell you: nothing drags its feet more than a foundation. The friction created by the foundation has far outweighed the decentralized value it has attached. With the introduction of the new regulatory framework of the US Congress, the crypto industry has a unique opportunity: to say goodbye to foundations and build a new system with better incentives, accountability mechanisms, and scale. After exploring the origins and shortcomings of foundations, this article will explain how crypto projects have moved away from foundation structures in favor of ordinary development companies and developed with emerging regulatory frameworks. I will explain each by one that companies are better at allocating capital, attracting top talent, and responding to market forces, and are better vehicles for driving structural incentive compatibility, growth, and impact. An industry that seeks to challenge big tech, big banks, and big government cannot rely on altruism, philanthropic funding, or vague missions. The large-scale development of the industry needs to rely on incentive mechanisms. If the crypto industry wants to deliver on its promises, it must get rid of structural sticks that no longer apply. Foundations, once a necessity Why did the crypto industry choose the foundation model in the first place? In the early days of the crypto industry, many founders sincerely believed that non-profit foundations helped promote decentralization. The Foundation is supposed to act as a neutral steward of the network's resources, holding tokens and supporting ecological development, without direct commercial interests. In theory, foundations are ideal for promoting credible neutrality and long-term public interest. To be fair, not all foundations have problems. For example, the Ethereum Foundation has been instrumental in the development of the Ethereum network, and its team members have done difficult and extremely valuable work under challenging constraints. However, over time, regulatory dynamics and market competition have gradually deviated from the original intention. The situation is further complicated by the SEC's "level of effort" based decentralized testing, which encourages founders to abandon, conceal or avoid participating in the networks they have built. 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: circumventing securities regulation by transferring power and ongoing development work to "independent" entities. While this approach is justified in the face of legal games and regulatory hostility, foundations' flaws cannot be ignored, they often lack coherent incentives, inherently fail to optimize growth, and solidify centralized control. As congressional proposals shift to a maturity framework based on "control," the separation and fiction of foundations is no longer necessary. This framework encourages founders to relinquish control, but does not force them to give up or conceal subsequent construction work. It also provides a clearer definition of decentralization than a framework based on "level of effort". As the pressure eases, the industry can finally say goodbye to stopgap and move to structures that are more suited to long-term sustainability. The Foundation has its historical role, but it is no longer the best tool for the future. Proponents argue that foundations are more aligned with the interests of token holders because they have no shareholders and can focus on maximizing the value of the network. But this theory ignores the actual operating logic of the organization. The abolition of equity incentives in companies does not eliminate the inconsistency of interests, but tends to institutionalize them. Foundations that lack a profit motive lack clear feedback loops, direct accountability mechanisms, and market constraints. The foundation's funding model is a sponsorship model: the sale of tokens into fiat, but the use of these funds lacks a clear mechanism to tie the payout to the outcome. Spending other people's money without taking any responsibility rarely produces the best results. Accountability mechanisms are intrinsic to corporate structures. Businesses are subject to market discipline: capital is spent in pursuit of profit, and financial results (revenue, profit margin, return on investment) are objective indicators of the success of efforts. Shareholders can evaluate management's performance and exert pressure if targets are not met. In contrast, foundations typically operate at a loss indefinitely without consequences. Because blockchain networks are open and permissionless and often lack a clear economic model, it is almost impossible to tie the foundation's work and spending to value capture. As a result, crypto foundations are shielded from the realities of market forces. Aligning Foundation members with the long-term success of the network is another challenge. Foundation members have weaker incentives than company employees, and 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 of foundation members are vulnerable to sharp fluctuations in the token price in the short term, while the incentive mechanism of the company's employees is more stable and long-term. Addressing this shortcoming is not an easy task, and successful companies grow and deliver ever-growing benefits to their employees, while successful foundations cannot. This makes it difficult to maintain incentive compatibility and can lead Foundation members to seek outside opportunities, raising concerns about potential conflicts of interest. The problem with foundations is not only distorted incentives, but also legal and economic constraints that limit their ability to act. Many foundations are legally unable to construct products or engage in certain commercial activities, even if those activities significantly benefit the network. For example, most foundations are prohibited from operating a for-profit consumer-facing business, even if the business drives a lot of traffic to the network and increases the value of the token. The economic realities facing foundations also distort strategic decisions. The Foundation bears the direct costs of the effort, 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 more; Companies subject to market discipline are better at providing these. Even though the Ethereum Foundation has made a lot of progress, who would have thought that Ethereum would have gotten better without the products and services developed by the for-profit company ConsenSys? Foundations' opportunities to create value may be further limited. The proposed market structure legislation currently focuses on the economic independence of tokens relative to any centralized organization, requiring value to originate from the programmatic operation of the network. This means that neither the company nor the foundation can prop up the token value through off-chain profitable businesses, such as FTX once maintained its price by buying and burning FTT through exchange profits. This makes sense because these mechanisms introduce trust dependence, which is the hallmark of securities. Foundation operational inefficiencies In addition to legal and economic constraints, foundations can create significant operational inefficiencies. Any founder who has managed a foundation knows the cost of breaking up high-performing teams to meet formal segregation requirements. Engineers focused on protocol development often have to work with business development, marketing, and marketing missions on a daily basis.
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Why does a16z say that the era of cryptocurrency foundations should come to an end?
A16z said that cryptocurrency projects should now say goodbye to expediency, embrace true decentralization. Written by Miles Jennings, Head of Policy and General Counsel at a16z crypto. Compiled by Luffy, Foresight News. (Synopsis: Ethereum Foundation announces layoffs & restructuring of R&D team as "Protocol", focusing on 3 strategic goals: expanding L1 and Blobs, improving user UX experience) (Background added: Analysis|How will the Sui Foundation unleash the $160 million frozen from hackers?) It's time for the crypto industry to move away from the foundation model. As a non-profit organization that supports the development of blockchain networks, the Foundation used to be an ingenious and legal way to promote the development of the industry. But these days, any founder who has ever started a crypto network will tell you: nothing drags its feet more than a foundation. The friction created by the foundation has far outweighed the decentralized value it has attached. With the introduction of the new regulatory framework of the US Congress, the crypto industry has a unique opportunity: to say goodbye to foundations and build a new system with better incentives, accountability mechanisms, and scale. After exploring the origins and shortcomings of foundations, this article will explain how crypto projects have moved away from foundation structures in favor of ordinary development companies and developed with emerging regulatory frameworks. I will explain each by one that companies are better at allocating capital, attracting top talent, and responding to market forces, and are better vehicles for driving structural incentive compatibility, growth, and impact. An industry that seeks to challenge big tech, big banks, and big government cannot rely on altruism, philanthropic funding, or vague missions. The large-scale development of the industry needs to rely on incentive mechanisms. If the crypto industry wants to deliver on its promises, it must get rid of structural sticks that no longer apply. Foundations, once a necessity Why did the crypto industry choose the foundation model in the first place? In the early days of the crypto industry, many founders sincerely believed that non-profit foundations helped promote decentralization. The Foundation is supposed to act as a neutral steward of the network's resources, holding tokens and supporting ecological development, without direct commercial interests. In theory, foundations are ideal for promoting credible neutrality and long-term public interest. To be fair, not all foundations have problems. For example, the Ethereum Foundation has been instrumental in the development of the Ethereum network, and its team members have done difficult and extremely valuable work under challenging constraints. However, over time, regulatory dynamics and market competition have gradually deviated from the original intention. The situation is further complicated by the SEC's "level of effort" based decentralized testing, which encourages founders to abandon, conceal or avoid participating in the networks they have built. 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: circumventing securities regulation by transferring power and ongoing development work to "independent" entities. While this approach is justified in the face of legal games and regulatory hostility, foundations' flaws cannot be ignored, they often lack coherent incentives, inherently fail to optimize growth, and solidify centralized control. As congressional proposals shift to a maturity framework based on "control," the separation and fiction of foundations is no longer necessary. This framework encourages founders to relinquish control, but does not force them to give up or conceal subsequent construction work. It also provides a clearer definition of decentralization than a framework based on "level of effort". As the pressure eases, the industry can finally say goodbye to stopgap and move to structures that are more suited to long-term sustainability. The Foundation has its historical role, but it is no longer the best tool for the future. Proponents argue that foundations are more aligned with the interests of token holders because they have no shareholders and can focus on maximizing the value of the network. But this theory ignores the actual operating logic of the organization. The abolition of equity incentives in companies does not eliminate the inconsistency of interests, but tends to institutionalize them. Foundations that lack a profit motive lack clear feedback loops, direct accountability mechanisms, and market constraints. The foundation's funding model is a sponsorship model: the sale of tokens into fiat, but the use of these funds lacks a clear mechanism to tie the payout to the outcome. Spending other people's money without taking any responsibility rarely produces the best results. Accountability mechanisms are intrinsic to corporate structures. Businesses are subject to market discipline: capital is spent in pursuit of profit, and financial results (revenue, profit margin, return on investment) are objective indicators of the success of efforts. Shareholders can evaluate management's performance and exert pressure if targets are not met. In contrast, foundations typically operate at a loss indefinitely without consequences. Because blockchain networks are open and permissionless and often lack a clear economic model, it is almost impossible to tie the foundation's work and spending to value capture. As a result, crypto foundations are shielded from the realities of market forces. Aligning Foundation members with the long-term success of the network is another challenge. Foundation members have weaker incentives than company employees, and 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 of foundation members are vulnerable to sharp fluctuations in the token price in the short term, while the incentive mechanism of the company's employees is more stable and long-term. Addressing this shortcoming is not an easy task, and successful companies grow and deliver ever-growing benefits to their employees, while successful foundations cannot. This makes it difficult to maintain incentive compatibility and can lead Foundation members to seek outside opportunities, raising concerns about potential conflicts of interest. The problem with foundations is not only distorted incentives, but also legal and economic constraints that limit their ability to act. Many foundations are legally unable to construct products or engage in certain commercial activities, even if those activities significantly benefit the network. For example, most foundations are prohibited from operating a for-profit consumer-facing business, even if the business drives a lot of traffic to the network and increases the value of the token. The economic realities facing foundations also distort strategic decisions. The Foundation bears the direct costs of the effort, 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 more; Companies subject to market discipline are better at providing these. Even though the Ethereum Foundation has made a lot of progress, who would have thought that Ethereum would have gotten better without the products and services developed by the for-profit company ConsenSys? Foundations' opportunities to create value may be further limited. The proposed market structure legislation currently focuses on the economic independence of tokens relative to any centralized organization, requiring value to originate from the programmatic operation of the network. This means that neither the company nor the foundation can prop up the token value through off-chain profitable businesses, such as FTX once maintained its price by buying and burning FTT through exchange profits. This makes sense because these mechanisms introduce trust dependence, which is the hallmark of securities. Foundation operational inefficiencies In addition to legal and economic constraints, foundations can create significant operational inefficiencies. Any founder who has managed a foundation knows the cost of breaking up high-performing teams to meet formal segregation requirements. Engineers focused on protocol development often have to work with business development, marketing, and marketing missions on a daily basis.