The New Direction of Governance in Encryption Projects: From Foundations to Corporations

Eleven years ago, the Ethereum Foundation was established in Switzerland, setting an early example for the governance structure of encryption projects. In the subsequent "Ten Thousand Chains Rising" era, the foundation became a standard configuration for Layer 1 projects, characterized by decentralization, non-profit status, and service to the community, and was once regarded as the gold standard for blockchain project governance.

However, a recent article discussing the end of the cryptocurrency foundation era has sparked a reevaluation of the foundation model within the industry. The challenges faced by this idealized structure are gradually becoming apparent, and the halo surrounding the foundation is rapidly fading.

The Ideal and Reality of Foundation Models

In theory, the foundation is seen as a key bridge for the project to transition from the startup phase to autonomous governance. However, as many projects enter the mature and scaling phase, this mechanism has begun to reveal structural problems. Internal contradictions, improper resource allocation, and decreased community involvement have become increasingly prominent, and many project foundations have experienced governance imbalances in actual operations, with the gap between ideals and reality continuing to widen.

A certain Layer 2 project's foundation allocated a large number of tokens without the community's consent, sparking strong opposition; another project's foundation faced backlash for improper use of tokens for leverage, leading to liquidation and a plummeting coin price, ultimately being forced to hand over the treasury to community management. Even the Ethereum Foundation has been criticized for selling ETH at high prices and inefficiencies, and although it has begun reforms recently, skepticism still exists.

In terms of power structure, some early projects fell into long-term internal strife due to power struggles between the foundation and the founding team, which not only delayed the development process but also triggered legal lawsuits from investors. Similar situations also occurred in other well-known projects, where foundations were accused of marginalizing the founders and lacking action on key matters.

These cases indicate that some foundations currently face issues such as lack of transparency in governance processes, ambiguous power structures, weak fund management and risk control, as well as insufficient community participation and feedback mechanisms. In the context of a more friendly regulatory environment and rapid changes in the industry, should the role positioning and governance model of foundations be re-evaluated and upgraded?

The role division between the foundation and Labs

In the actual operation of encryption projects, the division of roles between the foundation and Labs has gradually formed a structural paradigm: the foundation is responsible for governance coordination, fund management, and ecological funding, while technical development is usually undertaken by independent Labs or development companies. However, there may also be an increasingly complex reality of intertwined interests behind this.

According to industry insiders, a professional foundation "structure output group" has been formed behind some North American projects, consisting of lawyers and traditional compliance consultants. They provide standardized "Labs + Foundation" templates for projects, helping them to comply with token issuance regulations, design governance structures, and deeply participate in key matters such as airdrop rules, ecological fund allocations, and market-making collaborations.

However, these directors are usually not original members of the project, but hold important positions in the foundation with high annual salaries, having substantial "compliance veto power" without deeply participating in product development, and even influencing the flow of key resources.

Market performance of projects led by the foundation

By analyzing a group of public chain projects with high activity levels in the foundation over the past year, it was found that their tokens generally performed poorly in the market over the past three months and one year. Most project tokens experienced varying degrees of decline over the past three months, and their yearly performance was equally weak. However, this trend is also influenced by the overall downward trend in the altcoin market.

The Rise of Corporate Structure

According to industry news, two projects ranked in the top 200 by market capitalization plan to dismantle their foundation structure in the second half of this year and directly merge into Labs. As two mainstream organizational forms of encryption projects, foundations and corporate structures each have their own focus: foundations emphasize non-profit, decentralization, and ecological governance, while corporate structures are oriented towards efficiency and growth, pursuing business development and market value increase.

At the same time, some industry experts also stated that developing a company model can more precisely mobilize resources, attract talent, and quickly respond to changes. As the wave of IPOs in the U.S. heats up and the linkage between cryptocurrency and stocks intensifies, the company-led governance structure seems to have more advantages.

In this trend, the exit of some foundations seems to have entered a countdown. The shift in governance models for encryption projects is accelerating, and in the future, we may see more projects adopting more flexible and efficient corporate structures to cope with the rapidly changing market environment.