a16z: The End of the Crypto Foundation Era
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a16z: The End of the Crypto Foundation Era
Nothing is more of a drag than the foundation.
Navigating Web3 tides with focused insightsAuthor: Miles Jennings, Head of Policy and General Counsel at a16z crypto
Translation: Luffy, Foresight News
The crypto industry should move past the foundation model. Foundations—nonprofits established to support blockchain networks—were once a clever legal workaround for advancing the industry. But today, any founder who has launched a crypto network will tell you: nothing slows progress more than a foundation. The friction introduced by foundations now far outweighs their supposed decentralization benefits.
With new regulatory frameworks emerging in the U.S. Congress, the crypto industry has a rare opportunity: to abandon foundations and instead build new systems with superior incentives, accountability, and scalability.
After examining the origins and flaws of foundations, this article explains how crypto projects can discard the foundation structure and embrace regular development companies, leveraging emerging regulatory frameworks for growth. I’ll detail why companies are better equipped to allocate capital, attract top talent, respond to market forces, and serve as superior vehicles for structural incentive alignment, growth, and impact.
An industry aiming to challenge Big Tech, big banks, and big government cannot rely on altruism, charitable funding, or vague missions. Scaling requires incentives. If crypto is to fulfill its promise, it must shed structural crutches that no longer serve it.
Foundations Were Once Necessary
Why did the crypto industry initially adopt the foundation model?
In crypto’s early days, many founders genuinely believed nonprofit foundations would promote decentralization. Foundations were meant to act as neutral stewards of network resources—holding tokens and supporting ecosystem development without direct commercial interests. In theory, foundations were ideal for ensuring credible neutrality and long-term public benefit. To be fair, not all foundations have been problematic. For example, the Ethereum Foundation played a critical role in Ethereum’s development, with team members accomplishing difficult and highly valuable work under challenging constraints.
But over time, shifting regulatory dynamics and intensifying competition caused the foundation model to drift from its original intent. The U.S. Securities and Exchange Commission’s (SEC) “efforts”-based test for decentralization complicated matters further, incentivizing founders to disengage, conceal, or avoid involvement in the very networks they created. Growing competition also pushed projects to treat foundations as shortcuts to decentralization. Under these conditions, foundations became stopgap measures—shifting power and ongoing development to “independent” entities in hopes of sidestepping securities regulation. While understandable amid legal uncertainty and regulatory hostility, the shortcomings of foundations are now impossible to ignore: they often lack coherent incentives, are structurally ill-suited for growth, and entrench centralized control.
With congressional proposals moving toward a maturity framework based on “control”, such artificial separation is no longer necessary. This new framework encourages founders to relinquish control without forcing them to abandon or hide continued development work. Compared to the “efforts”-based approach, it also offers a clearer definition of decentralization.
As pressure eases, the industry can finally abandon temporary fixes and adopt structures better suited for long-term sustainability. Foundations served a historical purpose, but they are no longer the best tools for the future.
The Myth of Foundation Incentives
Supporters argue foundations align better with token holders because, lacking shareholders, they can focus solely on maximizing network value.
But this theory overlooks how organizations actually operate. Removing equity incentives doesn’t eliminate misaligned interests—it often institutionalizes them. Foundations, devoid of profit motives, lack clear feedback loops, direct accountability, and market discipline. Their funding model resembles patronage: selling tokens for fiat, then spending funds without mechanisms tying expenditures to outcomes.
Spending other people’s money without accountability rarely produces optimal results.
Accountability is inherent in corporate structures. Businesses face market discipline: they deploy capital to pursue profits, and financial metrics (revenue, margins, return on investment) objectively measure success. Shareholders can evaluate management performance and exert pressure when goals aren’t met.
In contrast, foundations typically operate indefinitely at a loss with no consequences. Because blockchain networks are open and permissionless, they often lack clear economic models, making it nearly impossible to link foundation activities and spending to value capture. As a result, crypto foundations are insulated from the realities of market forces.
Aligning foundation members with long-term network success presents another challenge. Foundation staff have weaker incentives than corporate employees. Their compensation usually consists of tokens and cash (from token sales), rather than the combination of tokens, cash (from equity sales), and equity offered by companies. This makes foundation incentives more volatile in the short term due to token price swings, while corporate incentives are more stable and long-term. Addressing this flaw isn’t easy: successful companies grow and provide increasing benefits to employees; successful foundations cannot. This makes sustained incentive alignment difficult and may lead foundation members to pursue external opportunities, raising concerns about potential conflicts of interest.
Legal and Economic Constraints of Foundations
Foundations’ problems extend beyond distorted incentives—legal and economic limitations also constrain their ability to act.
Many foundations are legally barred from building products or engaging in certain commercial activities—even those that could significantly benefit the network. For instance, most foundations cannot operate profitable consumer-facing businesses, even if such ventures would drive substantial traffic and increase token value.
The economic realities facing foundations also distort strategic decisions. Foundations bear the direct costs of effort, while benefits are dispersed and socialized. This distortion, combined with a lack of clear market feedback, makes effective resource allocation—whether for employee compensation, long-term high-risk projects, or short-term visible wins—extremely difficult.
This is not a recipe for success. Thriving networks depend on developing a suite of products and services—including middleware, compliance tools, developer infrastructure—and market-disciplined companies are better positioned to deliver them. Even with the Ethereum Foundation’s achievements, would anyone argue Ethereum would be better off without ConsenSys, the for-profit company whose products and services have been instrumental to its growth?
Foundations’ ability to create value may become even more constrained. Proposed market structure legislation focuses on a token’s economic independence from any centralized entity, requiring value to stem from the network’s programmable operations. This means neither companies nor foundations can prop up token value through off-chain revenue-generating activities—for example, like FTX once used exchange profits to buy and burn FTT. This is reasonable, as such mechanisms introduce trust dependencies, a hallmark of securities.
Inefficient Foundation Operations
Beyond legal and economic constraints, foundations also cause severe operational inefficiencies. Any founder who has managed a foundation knows the cost of dismantling high-performing teams to meet formal separation requirements. Engineers focused on protocol development often need daily collaboration with business development, marketing, and outreach teams, yet foundation structures isolate these functions.
Entrepreneurs grappling with these structural challenges frequently confront absurd questions: Can foundation staff share a Slack channel with company employees? Can the two organizations share a roadmap? Can they attend the same offsite meeting? The truth is, these issues have little real impact on decentralization, yet impose tangible costs: artificial barriers between interdependent functions slow development, hinder coordination, and ultimately degrade product quality.
Foundations as Centralized Gatekeepers
In many cases, crypto foundations have strayed far from their original mission. Numerous examples show foundations no longer focusing on decentralized development but instead accumulating increasing control, evolving into centralized gatekeepers managing treasury keys, key operational functions, and network upgrades. Often, foundation members lack accountability; even when token holder governance replaces foundation directors, it merely replicates the principal-agent model of corporate boards.
To make matters worse, establishing most foundations costs over $500,000 and involves months of work with numerous lawyers and accountants. This not only slows innovation but is prohibitively expensive for startups. The situation has deteriorated so much that it's increasingly difficult to find lawyers experienced in setting up foreign foundations, as many have abandoned their practices to collect fees as board members across dozens of crypto foundations.
In other words, many projects end up with a "shadow governance" dominated by entrenched interests: tokens may nominally represent network “ownership,” but actual control rests with foundations and their appointed directors. These structures increasingly clash with proposed market structure legislation, which rewards on-chain, accountable, control-minimized systems—not opaque off-chain arrangements. For users, eliminating trust assumptions is far more beneficial than hiding them. Mandatory disclosure requirements will also bring greater transparency, creating strong market pressure for projects to eliminate control rather than vest it in a few unaccountable individuals.
A Better, Simpler Alternative: Companies
If founders no longer need to disavow or hide their ongoing contributions to the network—and only need to ensure no one controls it—foundations are no longer necessary. This opens the door to superior structures that support long-term network development, align incentives across participants, and meet legal requirements.
In this new context, standard development companies offer a better vehicle for sustained network building and maintenance. Unlike foundations, companies efficiently allocate capital, attract top talent through broader incentives (beyond just tokens), and respond to market forces via feedback loops. Structurally, companies are aligned with growth and impact, without relying on charity funding or ambiguous mandates.
Of course, concerns about corporate incentives are not unfounded. A company’s existence means network value could flow to both tokens and equity, introducing real complexity. Token holders have legitimate reasons to worry that a company might design upgrades or retain privileges that prioritize equity over token value.
Proposed market structure legislation provides safeguards through its statutory definitions of decentralization and control. Yet ensuring incentive alignment remains important—especially as projects mature and initial token incentives eventually expire. Moreover, because there is no formal obligation between companies and token holders, concerns about misalignment will persist: legislation does not impose fiduciary duties to token holders nor grants them enforceable rights to demand continued effort from companies.
But these concerns are addressable—and insufficient justification for retaining foundations. They also do not require tokens to have equity-like attributes, which would undermine their distinct regulatory treatment from traditional securities. Instead, they highlight the need for tools that achieve incentive alignment through contractual and programmable means, without sacrificing enforceability or influence.
Existing Tools, New Uses in Crypto
The good news is that tools for incentive alignment already exist. The only reason they haven’t gained traction in crypto is that under the SEC’s “efforts”-based framework, using them invited greater scrutiny.
But under the “control”-based framework proposed in market structure legislation, the full potential of these mature tools can be unleashed:
Public Benefit Corporations. Development companies can register or convert to public benefit corporations, which carry a dual mandate: pursuing profit while achieving specific public benefits—such as supporting network development and health. This legal form gives founders flexibility to prioritize network growth even if it reduces short-term shareholder value.
Network Revenue Sharing. Networks and decentralized autonomous organizations (DAOs) can create sustainable incentive structures by sharing network revenue with companies. For example, a network with an inflationary token supply could distribute a portion of newly minted tokens to the company, coupled with revenue-based buyback mechanisms to manage overall supply. Well-designed revenue-sharing models can direct most value to token holders while creating a direct, lasting link between company success and network health.
Milestone-Based Token Vesting. Transfer restrictions on company-held tokens (preventing employees and investors from selling on secondary markets) should be tied to meaningful network maturity milestones. These could include thresholds for network usage, successful upgrades, decentralization metrics, or ecosystem growth targets. Current market structure legislation proposes one such mechanism: restricting insiders (like employees and investors) from selling tokens on secondary markets until the token achieves economic independence—that is, until the network develops its own economic model. Such mechanisms ensure early investors and team members remain strongly motivated to continue building, preventing premature exits before the network matures.
Contractual Protections. DAOs should negotiate contracts with companies to prevent actions that harm token holders. These include non-compete clauses, licensing agreements ensuring open access to intellectual property, transparency obligations, and rights to reclaim tokens or halt further payments in case of harmful conduct.
Programmatic Incentives. When network participants are rewarded via programmable token distributions for their contributions, token holders are better protected. Such incentives not only fund participation but also prevent protocol layer commoditization (where system value flows to non-protocol layers like clients). Solving incentive issues programmatically helps solidify the entire system’s decentralized economy.
Together, these tools offer greater flexibility, accountability, and durability than foundations, while allowing DAOs and networks to retain true sovereignty.
Implementation Path: DUNAs and BORGs
Two emerging models—DUNAs and BORGs—offer streamlined pathways to implement these solutions, eliminating the complexity and opacity of foundation structures.
Decentralized Unincorporated Nonprofit Association (DUNA)
A DUNA grants DAOs legal standing to enter contracts, hold property, and exercise legal rights—functions traditionally handled by foundations. But unlike foundations, DUNAs require no foreign headquarters, discretionary oversight committees, or complex tax structures.
DUNAs create a legal capacity without hierarchical bureaucracy, serving purely as neutral execution agents for DAOs. This minimalist structure reduces administrative burdens and centralized friction while enhancing legal clarity and decentralization. Additionally, DUNAs can offer token holders effective limited liability protection—an area of growing concern.
Overall, DUNAs provide a powerful tool for implementing incentive-aligned mechanisms around the network, enabling DAOs to contract with development companies and enforce rights—including token clawbacks, performance-based payments, and prevention of exploitative behavior—while preserving the DAO’s ultimate authority.
Cybernetic Organization Tooling (BORGs)
BORGs refer to technical infrastructure developed for autonomous governance and operations, allowing DAOs to migrate many “governance convenience functions” currently managed by foundations—such as grant programs, security councils, and upgrade committees—on-chain. By moving on-chain, these substructures can operate transparently under smart contract rules: permissions can be set where needed, but accountability must be hard-coded. Overall, BORGs minimize trust assumptions, strengthen liability protections, and support tax-optimized architectures.
DUNAs and BORGs together shift power from informal, off-chain institutions like foundations to more accountable on-chain systems. This isn’t just a philosophical preference—it’s a regulatory advantage. Proposed market structure legislation requires that “functional, administrative, clerical, or departmental actions” be handled by decentralized, rule-based systems rather than opaque, centrally controlled entities. By adopting DUNA and BORG architectures, crypto projects and development companies can fully comply with these standards without compromise.
Conclusion: Moving Beyond Expediency Toward Real Decentralization
Foundations helped guide the crypto industry through difficult regulatory times and enabled incredible technological breakthroughs and unprecedented levels of collaboration. In many cases, they filled critical gaps when no other governance structures could function—and many may continue to thrive. But for most projects, their role has been limited: a temporary fix for regulatory challenges.
That era is ending.
Emerging policy, changing incentive structures, and industry maturity all point in the same direction: toward genuine governance, real incentive alignment, and systematic design. Foundations fail to meet these needs—they distort incentives, hinder scaling, and entrench centralized power.
System survival shouldn’t depend on trusting “good actors,” but on ensuring every participant’s self-interest is meaningfully aligned with collective success. This is why corporate structures have endured for centuries. The crypto industry needs similarly robust structures: where public interest coexists with private enterprise, accountability is built-in, and control is minimized by design.
The next era of crypto will not be built on stopgap measures, but on scalable systems: systems with real incentives, real accountability, and real decentralization.
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