Why do Web3 projects need to establish cryptocurrency foundations?
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Why do Web3 projects need to establish cryptocurrency foundations?
How can Web3 projects achieve compliant operations, drive community growth, and ensure project success within the global regulatory landscape through cryptocurrency foundations?
Navigating Web3 tides with focused insightsAuthors: Liu Honglin, Iris
In the world of Web3, the concept of a foundation is frequently mentioned yet often poorly understood. As a core pillar of a project, a foundation not only shapes technological direction but also drives community development and ecosystem growth. However, for most early-stage Web3 teams, the question "Why establish a foundation?" remains an unavoidable challenge.
Previously, ManQin Lawyers, in their article *"Web3 Lawyers: Understanding the Ethereum Foundation's 2024 Report to Meet Compliance Challenges in the Trump Era,"* detailed the critical role crypto foundations play in U.S. legal compliance, analyzing trends in American regulation. As the industry matures and global regulatory frameworks evolve, the role of crypto foundations in Web3 projects is expanding—from technical support and governance to encompass compliance and ecosystem stewardship.
In this article, ManQin Lawyers will analyze how Web3 projects can achieve compliant operations, foster community growth, and secure long-term success through crypto foundations, based on the fundamental significance of such entities.
Governance Limitations in Web3 Projects
The uniqueness of Web3 lies in its ethos of decentralization, which opens vast possibilities but also introduces governance complexity. Unlike traditional enterprises that rely on clear hierarchies and stable management structures, Web3 governance must balance technology development, community self-governance, and ecosystem building—all while navigating competing interests among various stakeholders.
For many nascent Web3 projects, achieving governance independence is a persistent challenge. Early reliance on a centralized core team may accelerate development, but it risks creating a "centralized" governance trap. For instance, when key team members depart, the project’s legal responsibilities and operational direction may face significant risk due to the absence of an independent governing body. Moreover, concentrated decision-making power can limit community participation, undermining the very principle of decentralization.
Conflict of interest is another common issue under individual or team-based management models. When team members are also major token holders, their decisions may prioritize short-term gains over long-term sustainability. Such behavior not only erodes community trust but may also cause irreversible harm to the project’s ecosystem.
The establishment of a crypto foundation is precisely designed to resolve these governance challenges.
Core Functions of a Crypto Foundation
How, then, does a crypto foundation address these Web3 project challenges? This requires understanding the services a crypto foundation can provide.
Within the Web3 ecosystem, a foundation is more than just a management entity—it is a crucial pillar ensuring decentralization, sustainability, and compliance. From governance and financial management to ecosystem development, every function of a foundation is aligned with advancing long-term project growth and protecting community interests. Below are the core functions of a foundation in a Web3 project:
1. Decentralized Governance
Decentralization is the soul of Web3, and the foundation serves as its central mechanism. Through a foundation’s governance framework, a project can escape control by any single interest group, transferring greater decision-making power to the community. Typically, a crypto foundation establishes multiple teams to handle different functions—such as event teams organizing external activities, development teams driving innovation and product upgrades, and community teams managing global engagement.
Additionally, crypto foundations often use on-chain voting or proposal systems to build community consensus. For example, the Ethereum Foundation has long used the EIP (Ethereum Improvement Proposal) process, enabling developers and the broader community to co-determine technical direction. Such mechanisms enhance community involvement and prevent trust crises caused by opaque governance.
Foundations also bear responsibility for resource allocation—distributing development incentives, ecosystem expansion funds, and community rewards in a balanced manner. This transparent allocation model not only improves efficiency but also strengthens community confidence in the project.
2. Robust Financial Management
Web3 projects have diverse funding sources—from token sales to ecosystem partnerships—and professional management is essential to maximize their value. In this context, the crypto foundation acts as a "financial steward."
First, the foundation allocates resources across key areas such as R&D, marketing, and community building, based on the project’s strategic roadmap. For example, the Polkadot Foundation has established dedicated funds to support cross-chain protocol development; in 2023, the Ethereum Foundation allocated 25.7% of its budget to L1 development and 11% to ZK technology.
Second, to manage the high volatility of Web3 markets, foundations typically reserve part of their funds as a buffer against market fluctuations. This strategy enhances the project’s resilience and provides greater security for community members and investors.
More importantly, foundations usually disclose their financial status and spending reports every six months or annually, maximizing transparency and reinforcing trust across the ecosystem.
3. Ecosystem Development
A thriving ecosystem is essential to the success of any Web3 project, and the crypto foundation plays a central role in cultivating it. By providing funding, technical guidance, and organizing events, the foundation connects developers, users, and partners to jointly build a vibrant ecosystem.
Solana Foundation, for instance, supports developers within its ecosystem by offering technical resources and grants, helping them build more secure and feature-rich applications. This support goes beyond funding—it includes infrastructure services like technical tools and multi-signature wallets. Such targeted assistance accelerates technological innovation and improves user experience within the ecosystem.
Another notable example is NEAR Foundation. Through strategic fund allocation and community program support, it has attracted global partners and provided open-source tech stack access to developers. For example, NEAR Foundation has driven the integration of AI technologies, expanding the ecosystem’s application scope. These innovative initiatives strengthen technical capabilities and attract greater developer and user engagement.
Moreover, foundations organize hackathons and developer conferences—such as Ethereum’s annual Devcon held in various regions worldwide—which draw technical talent and other Web3 projects into ecosystem development. These events infuse new technical capabilities into the project and give users direct access to its progress, strengthening mutual trust.
The Compliance Shield for Web3 Projects
In an increasingly complex global regulatory landscape, Web3 projects face growing legal and compliance challenges. From intellectual property protection to the legality of cross-border transactions, each aspect presents potential risks. In this environment, crypto foundations serve as a vital compliance shield, leveraging their independent legal status and systematic legal support.
The foundation’s most significant compliance advantage lies in its status as an independent legal entity. This structure effectively isolates legal liability, protecting team members and community participants from direct exposure to lawsuits or regulatory actions. For example, if a project faces litigation over intellectual property, the foundation can act as the sole legal respondent, containing risks at the organizational level rather than spreading them to core developers or community members. This liability separation reduces legal burdens on operators and encourages more confident community participation.
Thoughtful legal structuring is another key strength. Currently, Singapore, Switzerland, and Hong Kong have become popular jurisdictions for registering crypto foundations. This is no coincidence—these regions offer crypto-friendly regulations and opportunities for tax optimization. For example, Singapore’s clear legal framework and trust structures help foundations reduce operating costs by approximately 30%; Switzerland’s “Crypto Valley” enjoys globally recognized supportive policies, providing ample room for technological advancement and ecosystem expansion; and Hong Kong’s latest virtual asset regulations create compliance advantages for foundations operating in Asia. These favorable legal environments ensure legitimacy while optimizing tax and capital flow efficiency, enabling more effective resource management.
Intellectual property protection is also a core mission of the foundation. In Web3 projects, code, trademarks, and brand identity are key competitive assets. Centralized management by the foundation ensures these innovations are not misused. For example, the Ethereum Foundation has registered the “Ethereum” trademark globally, preventing malicious third-party exploitation. This centralized approach protects project assets and lays a solid foundation for global brand development.
Furthermore, foundations play a vital role in cross-border investment and transactions. The global nature of Web3 makes international capital flows and collaboration commonplace, yet regulatory approaches to digital assets vary widely across countries. Foundations work with legal experts to ensure every transaction and partnership complies with local laws. For instance, in the U.S., foundation teams conduct due diligence to ensure token offerings comply with the Securities Act; in the EU, they help projects adhere to GDPR requirements, ensuring lawful handling of user data.
Finally, foundations reduce compliance risks through highly transparent operations. They typically enforce strict anti-money laundering (AML) and know-your-customer (KYC) policies to verify the legitimacy of fund sources and uses. Regular financial audits and public reporting further strengthen community trust. Transparency not only lowers legal risk but also enhances the project’s credibility in the marketplace.
ManQin Lawyers’ Summary
The success of a Web3 project depends not only on technological innovation but also on robust governance and compliance safeguards. As independent legal entities, crypto foundations provide frameworks for decentralized governance and leverage unique legal standing to resolve complex operational challenges. From resource allocation and ecosystem growth to intellectual property protection and legal risk mitigation, foundations play an indispensable role in ensuring sustainable project development.
Globally, jurisdictions such as Singapore, Switzerland, and the Cayman Islands have long been preferred destinations for establishing crypto foundations, thanks to their supportive legal environments and efficient policy implementation. Meanwhile, as Hong Kong advances its open and comprehensive virtual asset regulations, its strong financial ecosystem and detailed regulatory guidance are making it an increasingly attractive choice for Asian Web3 projects seeking to establish foundations.
ManQin Law Firm has deep expertise in the Web3 sector, with extensive experience in foundation setup and compliance services. Whether your project aims for global expansion or local impact, our legal team offers tailored, end-to-end solutions—from structural design and financial management to operational support. Choosing ManQin means choosing professionalism and stability—and paving a compliant, prosperous path forward for your project.
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