The cryptocurrency industry is at a pivotal crossroads. Once seen as a necessary vehicle for decentralization, blockchain foundations are now being challenged as outdated, inefficient, and misaligned with the long-term goals of trustless systems. According to Miles Jennings, Policy Lead and General Counsel at a16z crypto, it's time to move beyond foundations and embrace new, more sustainable models built on real incentives, accountability, and regulatory clarity.
With evolving legislation—particularly U.S. congressional proposals shifting from an “effort-based” to a “control-based” framework for assessing decentralization—the structural crutches of the past are no longer needed. The path forward lies not in nonprofit entities, but in lean, incentivized development companies working in tandem with decentralized governance systems.
This article explores why crypto foundations have outlived their usefulness, how they distort incentives and hinder growth, and what better alternatives exist today.
The Rise and Fall of the Foundation Model
Why Foundations Were Once Necessary
In the early days of blockchain innovation, foundations emerged as a pragmatic solution. As nonprofit organizations, they were designed to steward protocol development without direct commercial interests. The idea was simple: create a neutral entity to manage treasury funds, fund ecosystem projects, and guide technical evolution—all while maintaining "credible neutrality."
And in some cases, they worked. The Ethereum Foundation played a crucial role in advancing one of the most important networks in crypto history. Its team delivered complex upgrades under immense pressure, proving that well-run foundations could contribute meaningfully.
But over time, the model became distorted. Regulatory uncertainty—especially the SEC’s “effort-based” decentralization test—pushed teams to distance themselves legally from their own protocols. To avoid being classified as securities issuers, founders would offload responsibilities to “independent” foundations, often creating artificial separations that looked decentralized on paper but weren’t in practice.
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This led to a paradox: teams had to hide their ongoing contributions to prove decentralization. Meanwhile, competition intensified, and many projects adopted foundation structures not for philosophical reasons, but as legal shields.
Now, with proposed legislation like the Clarity Act introducing a “control-based” maturity framework, that pressure is lifting. Teams can now openly contribute to their networks without retaining control—making foundations obsolete as regulatory fig leaves.
The Myth of Aligned Incentives
Proponents argue that foundations align better with token holders because they lack shareholders and profit motives. But this ignores how organizations actually function.
Removing profit incentives doesn’t eliminate misalignment—it often entrenches it. Foundations typically operate on grant-like funding: selling tokens for fiat and spending without clear performance metrics. There’s no direct feedback loop between effort and outcome.
Compare this to companies: they live or die by market discipline. Revenue, profitability, and return on investment provide objective measures of success. Shareholders hold management accountable. Poor performance leads to consequences.
Foundations, by contrast, can run at a loss indefinitely—with little consequence. Without clear economic models linking expenditure to value capture, it’s nearly impossible to assess whether foundation spending actually benefits the network.
Moreover, foundation employees face weaker long-term incentives. Their compensation usually includes tokens and cash—but rarely equity. This makes them more vulnerable to short-term token volatility and less invested in sustained network growth than company employees, who benefit from stock appreciation over time.
Legal and Economic Constraints
Beyond misaligned incentives, foundations face real-world limitations:
- Legal Restrictions: Most cannot run consumer-facing businesses—even if those services would drive adoption and increase token value.
- Economic Distortions: They bear the full cost of development while benefits are socialized across the network. This makes capital allocation inefficient.
- Regulatory Risk: Proposed market structure laws emphasize programmatic value creation—meaning off-chain revenue streams (like exchange profits propping up token prices) won’t count toward decentralization.
In other words, even if a foundation wanted to build a profitable app to fund development, it likely couldn’t—and even if it did, regulators might discount that effort anyway.
Meanwhile, for-profit entities like ConsenSys have been instrumental in Ethereum’s growth through tools like MetaMask. Would Ethereum be where it is today without such companies? Unlikely.
Operational Inefficiencies and Governance Failures
Splitting teams between a foundation and a separate company creates real friction:
- Can engineers collaborate freely with marketers?
- Can both teams share the same roadmap?
- Are joint meetings allowed?
These aren’t theoretical concerns—they’re daily hurdles that slow development, fragment communication, and degrade product quality.
Worse, many foundations have become centralized gatekeepers, controlling treasuries, upgrade permissions, and key operational functions—all while lacking meaningful accountability. Token holder governance often mimics corporate board structures without the same enforcement mechanisms.
And setting up these entities is costly—often exceeding $500,000 and involving months of legal work. So many lawyers now serve as paid directors across multiple foundations that experienced advisors are becoming scarce.
This has given rise to "shadow governance": where token ownership is decentralized in name only, but real power rests with foundation insiders.
A Better Path: Companies + DAOs + Smart Tools
If founders no longer need to hide their involvement—and only need to prove lack of control—then development companies become the superior model.
They offer:
- Stronger talent incentives (equity + tokens)
- Efficient capital allocation
- Market responsiveness
- Clear accountability
Yes, concerns remain: could companies prioritize shareholder value over tokenholder interests? Could they design upgrades that favor equity?
But these risks can be mitigated using proven tools—now newly viable under control-based regulation:
🔹 Public Benefit Corporations
Companies can adopt dual missions: pursuing profit while legally committing to network health.
🔹 Network Revenue Sharing
DAOs can share protocol revenue with dev companies via inflation or fee-sharing mechanisms—tying company success directly to network growth.
🔹 Milestone-Based Token Vesting
Team tokens unlock only after achieving measurable milestones (e.g., user thresholds, upgrades). This prevents premature exits.
🔹 Contractual Safeguards
DAOs can sign enforceable agreements with companies—including IP licensing, non-compete clauses, and clawback rights.
🔹 Programmatic Incentives
Smart contracts can automate rewards for contributors, reducing reliance on discretionary grants and minimizing centralization risks.
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Emerging Architectures: DUNAs and BORGs
Two innovative models are simplifying the transition:
Decentralized Unincorporated Nonprofit Associations (DUNAs)
DUNAs give DAOs legal standing—allowing them to sign contracts and hold assets—without the overhead of foreign foundations. They act as neutral agents, reducing bureaucracy while enhancing legal clarity and liability protection.
Cybernetic Organization Tooling (BORGs)
BORGs move governance functions—like funding programs or security councils—on-chain via smart contracts. Rules are hardcoded, permissions auditable, and accountability enforced algorithmically.
Together, DUNAs and BORGs shift power from opaque off-chain entities to transparent, rule-based systems—precisely what new regulations demand.
Conclusion: From Expediency to Authentic Decentralization
Foundations served a purpose in crypto’s infancy. But clinging to them today hinders scalability, distorts incentives, and perpetuates centralization.
The future belongs to systems where:
- Public good and private incentive coexist
- Accountability is baked in
- Control is minimized by design
The next era of crypto won’t be built on legal fictions—but on scalable architectures with real incentives, real accountability, and real decentralization.
Frequently Asked Questions (FAQ)
Q: Are all crypto foundations harmful?
A: Not necessarily. Some have played vital roles in early development. But as the industry matures and regulation evolves, most will become unnecessary or counterproductive.
Q: Can companies really act in the public interest?
A: Yes—especially when structured as public benefit corporations and bound by contractual obligations to the DAO. Profit motive doesn’t preclude long-term stewardship.
Q: What stops a company from taking control of a network?
A: A combination of milestone-based vesting, programmatic governance, contractual safeguards, and regulatory requirements around economic independence.
Q: How do DUNAs differ from traditional foundations?
A: DUNAs are simpler, cheaper, and fully aligned with DAO governance. They don’t require offshore registration or complex tax setups—and they don’t centralize power.
Q: Is full decentralization possible without foundations?
A: Yes—decentralization should be measured by control distribution and economic independence, not by the presence of a nonprofit entity.
Q: What role do DAOs play in this new model?
A: DAOs become the sovereign entities—setting policy, approving budgets, enforcing contracts, and holding developers accountable through transparent, on-chain mechanisms.
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