Original Article Title: The end of the foundation era in crypto

Original Article Author: Miles Jennings, a16z Crypto

Original Article Translation: Azuma, Odaily Planet Daily

The cryptocurrency industry is ready to abandon the foundation model. Foundations—non-profit organizations that support the development of blockchain networks—have been a clever legal mechanism that has driven industry growth. However, today, any founder who has launched a network project will tell you, "Nothing has been more of a hindrance than this."

Today, the obstacles created by the foundation model far outweigh the decentralization convenience it brings. With the U.S. Congress proposing a new regulatory framework, the cryptocurrency industry has a rare opportunity to discard the foundation and its hindrances—this is an opportunity to build with better consistency, accountability, and scalability in mind.

After analyzing the origin and flaws of foundations, I will explore how crypto projects are abandoning the foundation structure and instead leveraging regular development companies to adapt to the emerging regulatory frameworks and approaches. I will explain why companies can more effectively allocate capital, attract top talent, and respond to market forces, making them a better vehicle for promoting structural consistency, growth, and influence.

An industry aimed at challenging tech giants, large banks, and government regulation cannot rely on altruism, charitable funding, or vague missions. Industry scalability relies on incentive mechanisms. If the crypto industry is to fulfill its promise, it must shed those no longer applicable structural crutches.

Foundation: The Once Necessary Choice

So, why did cryptocurrency initially adopt the foundation model?

In the early days of the crypto industry, many founders chose a non-profit foundation out of belief, thinking these entities could promote project decentralization. The foundation was supposed to be a neutral steward of network resources, holding tokens and supporting ecosystem development without direct commercial interests. In theory, the foundation helped achieve trusted neutrality and long-term public benefit. To be fair, not all foundations have issues. For example, the Ethereum Foundation has played a positive role in the growth and development of the network, with its members doing valuable work under challenging conditions.

However, over time, regulatory trends and increasing market competition have caused the foundation model to deviate from its original purpose. The U.S. Securities and Exchange Commission (SEC) decentralized development test made the situation more complex—it encouraged founders to abandon, obscure, or circumvent their involvement in creating the network; intense competition further prompted projects to see the foundation as a shortcut to decentralization. Under these conditions, foundations today are often just a circumstantial workaround: by transferring power and ongoing development work to an "independent" entity in an attempt to evade securities regulation. While this practice is understandable when facing legal pressure and regulatory hostility, it also exposes the flaws of foundations—they often lack a consistent incentive mechanism, structurally unable to optimize growth, instead consolidating centralized control.

As the U.S. Congressional proposal shifts towards a mature framework based on "control," the separation and artifice of foundations are no longer necessary. The "control"-based framework encourages founders to relinquish control of the project without being forced to evade or conceal their ongoing development of the project. Compared to the "effort-based" framework, it provides a more explicit (and less easily abused) definition of decentralization as a development goal.

With this pressure relieved, the industry can finally move away from past expedients and towards a structure more suited for long-term sustainability. Foundations did have a role to play in the past, but they are no longer the optimal tool for the future.

Can Foundations Really Align with Tokenholders' Interests?

Supporters of the foundation model believe that foundations can better align with tokenholders' interests as they have no shareholders and can focus on maximizing network value.

However, this theory overlooks how foundations actually operate. A foundation without a profit motive lacks a clear feedback mechanism, direct accountability, and market constraints. The foundation's funding model is essentially sponsorship-based—distributing tokens for fiat, with no clear mechanism tying expenditure of these funds to outcomes.

When spending other people's money without accountability, few people will seek to maximize efficiency. Corporate structures inherently have accountability mechanisms; companies are bound by market forces: they allocate capital to pursue profits, and financial performance (revenue, profit margins, and return on investment) objectively reflects operational effectiveness. When management fails to meet clear objectives, shareholders can assess performance and apply pressure.

In contrast, foundations are often set up to sustain indefinite losses without consequences. Due to the open and permissionless nature of blockchain networks, coupled with often unclear economic models, it's nearly impossible to tie the foundation's inputs to value capture. In this situation, crypto foundations can avoid the harsh realities of the market that require tough decisions.

Binding foundation employees to the long-term success of the network is even more challenging. Foundation employees' incentives are weaker compared to corporate employees—they usually receive compensation in the form of a combination of tokens and cash (funds from foundation token sales), not the “tokens + cash (from equity financing) + equity” combination enjoyed by corporate employees. This means foundation employees are subject to the volatile token prices with shorter incentive cycles, while corporate employees have more stable long-term incentives. However, bridging this gap is very difficult—successful companies continue to grow and create more value for employees, which successful foundations fail to achieve. This difference leads to difficulty in maintaining alignment of interests, potentially prompting foundation employees to seek outside opportunities and raise concerns about conflicts of interest.

The Legal and Economic Constraints of Foundations

Foundations not only face incentive distortions, but their actions are also constrained by legal and economic limitations.

Most foundations are prohibited from developing derivative products or engaging in commercial activities—even if these actions could significantly enhance network value. For example, even if a for-profit end-user business could bring a substantial amount of transaction volume to the network and increase the token value, the vast majority of foundations are still prohibited from operating such a business.

The economic reality that foundations face also distorts strategic decision-making. They have to bear costs directly, while the benefits (if any) are distributed and shared by the entire network. This distortion, coupled with a lack of market feedback, leads to inefficient resource allocation—whether it be in terms of employee salaries, long-term high-risk projects, or short-term PR efforts.

This is by no means a path to success. A successful network ecosystem requires the development of a wide range of products and services (middleware, compliance tools, developer kits, etc.), and profit-driven enterprises are better at providing these in accordance with market dynamics. Even though the Ethereum Foundation has achieved significant milestones, could the Ethereum ecosystem have reached its current height without the various products built by the for-profit entity ConsenSys?

The value creation space of foundations may be further squeezed. Proposed market structure laws focus on the economic independence of tokens and centralized organizations, requiring that value must originate from the network's programmable functions (such as the value accumulation of ETH under the EIP-1559 mechanism). This means that both enterprises and foundations cannot support token value through off-chain profit-generating activities—such as FTX using trading platform profits to buy back and burn FTT to maintain coin price. This restriction is reasonable because a centralized buyback mechanism introduces trust dependencies specific to securities (the collapse of FTX led to a sharp drop in FTT price). However, while prohibiting such mechanisms, it also closes off market-based accountability pathways (through off-chain revenue-generating activities).

The Inefficient Operation Brought by Foundations

In addition to legal and economic constraints, foundations also lead to severe operational inefficiency. Any founder who has dealt with a foundation knows deeply: to meet formal (often ceremonial) separation requirements, efficient collaborative teams have to be broken up. Engineers focused on protocol development originally needed to collaborate daily with business development and marketing teams—but under the foundation's structure, these functions are artificially separated.

Faced with these structural challenges, entrepreneurs are often forced to deal with some absurd issues that should not have become obstacles: Can foundation staff and company staff share a Slack channel? Can two organizations share a development roadmap? Can employees participate in the same team building activities? In fact, these issues have nothing to do with decentralization, yet they come at a real cost: artificially imposed functional barriers slow down development progress, hinder collaboration, and ultimately damage the product experience for all users.

Foundation Reduced to a "Centralized Gatekeeper"

In many cases, the actual role of a cryptocurrency foundation has strayed significantly from its original purpose. Many foundations are no longer focused on decentralized development but instead wield increasing power—they control the treasury keys, key operational functions, and network upgrade permissions, evolving into new centralized entities. In most cases, these foundations lack substantive accountability to token holders; even if a token holder governance mechanism exists to replace foundation directors, it merely replicates the issue of delegated agency seen in corporate boards with fewer avenues for recourse.

What's worse, establishing a foundation often requires over $500,000 in funding, months of time costs, and a large number of lawyers and accountants. This not only hampers innovation but also excludes small teams. The situation has deteriorated to the point where even lawyers familiar with overseas foundation structures are hard to come by—many have already switched careers. Why? Because they now prefer to serve as figurehead directors for dozens of crypto foundations and easily earn advisory fees.

Ultimately, many projects have taken on a "shadow governance" model of vested interests—where tokens may symbolize the "nominal ownership" of the network, but the foundation and its appointed directors are always in control. This structure runs counter to the emerging ethos of market-based governance legislation, which encourages eliminating control through on-chain accountability mechanisms rather than just dispersing control through opaque off-chain structures. For users, complete elimination of trust reliance is far superior to hiding the controller. Mandatory disclosure requirements will also increase transparency in existing governance structures, exerting significant market pressure on projects to eliminate control rather than entrust it to a few irresponsible actors.

A Better Solution: Traditional Corporate Structure

When founders no longer need to give up or conceal their ongoing contributions to the network but simply ensure that no one can single-handedly control the network, the foundation loses its necessity. This paves the way for a better architecture—one that can support long-term development, coordinate incentives among stakeholders, and meet legal requirements.

In a new regulatory environment, a regular development company (from conceptualization to implementing network construction) is the superior vehicle for ongoing network building and maintenance. Compared to a foundation, a company can efficiently allocate capital, attract top talent through a "token + equity" combination, and adjust strategies promptly based on market feedback. A corporate structure inherently strives for growth and influence without relying on charitable funds or a vague mission.

Of course, concerns about corporate incentive mechanisms are not entirely unfounded. With a persistent development company, the network's value may flow to both tokens and company equity, introducing more complexity. Token holders may worry that the development company could design network upgrade proposals biased toward its own equity or retain certain privileges.

The proposed market structure legislation provides protection through a legal definition of "decentralization and governance rights," but ensuring alignment of incentives remains a long-term issue, especially as projects operate over time and initial token incentives are depleted. Due to the lack of a legal-defined duty between companies and token holders, concerns about incentive misalignment will continue to exist—neither does the law establish a fiduciary duty of companies to token holders nor does it give token holders the right to enforce ongoing contributions from companies.

However, these concerns can be addressed through technical means, which should not be a reason to continue the foundation model. We also do not need to attribute equity-like properties to tokens, as this would blur the regulatory line between tokens and securities. The real solution is to continuously calibrate incentives through contracts and programmatic tools, without compromising execution efficiency and impact.

New Opportunities with Existing Tools

While the cryptocurrency industry is not yet mainstream, incentive coordination tools have long existed. The only reason these tools have not been widely adopted is that the SEC's regulatory framework based on "efforts of others" subjects them to stricter scrutiny.

Under the "governance rights" framework proposed by the market structure legislation, the following mature tools will be able to fully leverage their power:

Public Benefit Corporation (PBC) Structure

Development companies can register or transform into a Public Benefit Corporation—a type of enterprise that combines profit-making goals with a dual mission of promoting specific public interests (here, supporting network development and health). PBCs give founders legal flexibility to prioritize network development, even if it may sacrifice short-term shareholder interests.

Network Revenue Sharing Mechanism

Networks and Decentralized Autonomous Organizations (DAOs) can establish sustainable incentives through revenue sharing. For instance, a network employing an inflationary token mechanism can allocate a portion of newly minted tokens to the development company, while coordinating a buyback and burn mechanism based on revenue to adjust the total supply. Well-designed revenue-sharing schemes can direct most of the value to token holders while establishing a lasting connection between corporate development and network health.

Milestone Unlocking Mechanism

Token locking by companies for employees and investors (restricting secondary market sales) should be linked to key network development milestones. These milestones include: network usage thresholds, major upgrades (such as The Merge, etc.), decentralization metrics (meeting specific governance rights criteria), ecosystem growth targets, etc. The current market structure legislation has proposed similar mechanisms, requiring insiders (employees/investors) to refrain from secondary market sales until the network token forms an independent economic model. Such designs can ensure that early contributors continue to build the network rather than cash out prematurely when the ecosystem is immature.

Contract Safeguards

A DAO should enter into agreements with entities to prevent actions that harm the interests of token holders, including: non-compete clauses, safeguarding intellectual property with open-source licenses, transparency obligations, and the right to claw back unfulfilled tokens or suspend payments.

Programmable Incentive System

When network participants (such as protocol-based client operators, infrastructure maintainers, liquidity providers, etc.) receive rewards for their contributions through on-chain allocation mechanisms, token holders are better protected. This design not only funds ecosystem contributions but also prevents the value at the protocol layer from being captured by other levels of the tech stack (such as the client layer). Programmable incentives can strengthen the decentralization of the entire system's economy.

Overall, these tools offer greater flexibility, accountability, and longevity compared to foundations, while ensuring that the DAO and the network maintain true sovereignty.

Implementation Path: DUNA and BORG Architecture

Two emerging approaches—DUNA and BORG—provide a lightweight implementation path for the above schemes while avoiding the redundancy and opacity of a foundation:

Decentralized Unincorporated Nonprofit Association (DUNA)

This architecture grants legal entity status to the DAO, enabling it to sign contracts, hold assets, and exercise legal rights (previously done by the foundation). However, unlike a foundation, DUNA does not need to establish a headquarters overseas, set up a discretionary oversight board, or design complex tax structures.

DUNA creates a form of legal personality without legal tiers—purely as a neutral execution agent for the DAO. This extremely simple structure reduces administrative burden and centralization friction while enhancing legal clarity and decentralization. Additionally, DUNA can provide effective limited liability protection to token holders, which is becoming an increasingly critical need.

Overall, DUNA provides a robust mechanism for network incentive coordination, enabling the DAO to engage in service agreements with development companies and enforce these rights through provisions such as token recovery, performance-based payments, and protection against exploitation—while always maintaining the DAO's position as the ultimate decision-making body.

Controlled Organizational Tools (BORG)

These governance technologies can transfer the foundation's "governance convenience" functions (grant programs, security committees, upgrade committees) to the chain. Through smart contract rules, these substructures can both set permissions as needed and embed accountability mechanisms. BORG tools can minimize trust assumptions, enhance liability isolation, and optimize tax structures.

The combination of DUNA and BORG transfers power from off-chain informal entities like foundations to a more accountable on-chain system. This is not just a conceptual advancement but also a regulatory advantage. Proposed legislation mandates that "functional, administrative, transactional work" must be handled through a decentralized rules system rather than an opaque centralized entity. Projects adopting the DUNA+BORG architecture can meet these standards without compromising.

The End of the Foundation Era

Foundations have guided the cryptocurrency industry through regulatory winters and facilitated remarkable technological advancements and unprecedented levels of collaboration. In many cases, when other structures were inadequate, foundations filled critical gaps. While some foundations may continue to thrive, for most projects, the role of a foundation has always been limited—a temporary solution to regulatory hostility.

The era of foundations is coming to an end. The evolution of emerging policies, incentive mechanisms, and industry maturity all point in the same direction: true governance, genuine alignment of interests, authentic system architecture. Foundations are no longer able to meet these demands—they distort incentives, hinder scalability, and solidify centralized power.

The sustainability of enduring systems does not rely on trust in benevolent actors but on ensuring that each participant's interests are deeply tied to overall success. This is why corporate structures can last for centuries. The cryptocurrency industry needs a similar architecture: alignment of public and commercial interests, embedded accountability mechanisms, and actively constrained governance. The next chapter of cryptocurrency will not be built on stopgap solutions but will rely on scalable systems—systems with genuine incentives, genuine accountability, and genuine decentralization.

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