a16z: Trustless does not equal to no responsibility, Web3 governance enters the era of accountability.

Article | a16z

Written by | Miles Jennings

Compiled | Portal Labs

The Crypto Foundation - a non-profit organization that supports the development of blockchain networks - was once a clever legal path to promote industry growth. But today, any founder who has launched a network would admit: the Crypto Foundation has become the greatest obstacle to development. In the process of decentralization, the friction they create far exceeds their contributions.

With the new regulatory framework emerging from the U.S. Congress, the cryptocurrency industry is presented with a rare opportunity: to abandon the model of cryptocurrency foundations and its derivative frictions, and to rebuild the ecosystem with a mechanism that has clear rights and responsibilities and is scalable.

After analyzing the origins and shortcomings of the cryptocurrency foundation model, I will argue how cryptocurrency projects can replace the cryptocurrency foundation structure with conventional development companies, leveraging emerging regulatory frameworks. The full text will explain the superiority of the corporate system in capital allocation, talent acquisition, and market response—only this path can achieve structural synergy, scale growth, and substantial impact.

An industry aspiring to challenge tech giants, financial tycoons, and government systems cannot rely on altruism, charitable funding, or vague missions. Economies of scale arise from incentive mechanisms. If the crypto industry is to fulfill its promises, it must break free from outdated structural crutches.

The historical mission and temporal limitations of the Crypto Foundation

Why did the crypto industry choose the model of a crypto foundation?

Its roots lie in the early founders' idealism of decentralization: the non-profit crypto foundation aims to act as a neutral manager of network resources, avoiding commercial interests' interference by holding tokens and supporting ecological development. Theoretically, this model can best achieve credible neutrality and long-term public value. Objectively speaking, not all crypto foundations are ineffective; for instance, the Ethereum Foundation has promoted network development under its support, and its members have completed highly valuable pioneering work under strict constraints.

However, over time, the evolving regulatory dynamics and intensified market competition have caused the model of crypto foundations to deviate from its original intention:

1. SEC's dilemma in behavioral testing. "Decentralized testing based on development behavior" complicates matters - forcing founders to abandon, obscure, or evade participation in their own networks.
2. Shortcut thinking under competitive pressure. Project parties view the crypto foundation as a shortcut tool for decentralization.
3. Regulatory avoidance channels. The cryptocurrency foundation has become an "independent entity" for the transfer of responsibilities and has essentially become a circumvention strategy to evade securities regulation.

Although this arrangement is reasonable during legal disputes, its structural flaws can no longer be ignored:

1. Lack of incentive coordination: Absence of a coherent interest coordination mechanism.
2. Growth optimization incapacity: structurally unable to achieve scale expansion optimization
3. Consolidation of control: ultimately forming a new type of centralized control

As the congressional proposal advances a mature framework based on control, the illusion of separation from the crypto foundation is no longer necessary. This framework encourages founders to relinquish control without having to give up participation in building, while providing clearer (and less prone to abuse) decentralized construction standards than behavioral testing frameworks.

When this pressure is lifted, the industry can finally abandon temporary measures and shift towards a long-term sustainable framework. The cryptocurrency foundation has fulfilled its historical mission, but it is not the best tool for the next stage.

Myth of the Incentive Collaboration of the Crypto Foundation

Supporters claim that the cryptocurrency foundation can better align the interests of token holders, as it is free from shareholder interference and focuses on maximizing network value.

However, this theory overlooks the actual operational logic of organizations: eliminating equity incentives for enterprises does not solve the issue of misalignment of interests, but instead institutionalizes it. The lack of profit motivation results in crypto foundations lacking clear feedback mechanisms, direct accountability, and market enforcement constraints. The funding of crypto foundations essentially operates on a shelter model: after tokens are distributed and converted to fiat, there is no clear linkage mechanism between expenditures and outcomes.

When the funds of others are managed in a low-accountability environment, optimizing benefits is almost impossible.

The corporate structure has an internal accountability mechanism: the company is constrained by market laws. Capital is allocated for profit, and financial indicators (revenue, profit margin, return on investment) objectively measure effectiveness. When management fails to meet targets, shareholders can assess and apply pressure.

In contrast, crypto foundations are often set up to operate at perpetual losses with no consequences. Due to the open and permissionless nature of blockchain networks, which often lack clear economic models, it is almost impossible to map the efforts and expenditures of crypto foundations to value capture. As a result, crypto foundations are isolated from market realities that demand hard decision-making.

It is more challenging for cryptocurrency fund employees to achieve long-term success in collaboration with the network: their incentives are weaker than those of corporate employees, as their compensation consists only of a combination of tokens and cash (derived from cryptocurrency foundation token sales), rather than the token + cash (derived from equity financing) + equity combination that corporate employees receive. This means that cryptocurrency fund employees are restricted by the extreme volatility of token prices, which only provides short-term incentives; whereas corporate employees enjoy stable long-term incentives. Addressing this shortcoming is fraught with difficulties. Successful companies continuously improve employee benefits through growth, but successful cryptocurrency foundations cannot. This leads to difficulties in maintaining collaboration, and cryptocurrency fund employees are more likely to seek external opportunities, breeding potential conflicts of interest.

Legal and Economic Constraints of the Crypto Foundation

Cryptocurrency foundations not only face incentive distortions but also confront legal and economic capacity constraints.

Most cryptocurrency foundations are legally prohibited from developing peripheral products or engaging in commercial activities, even if such initiatives could significantly benefit the network. For instance, the vast majority of cryptocurrency foundations are banned from operating consumer-facing profit-making businesses, even if that business could generate substantial trading volume for the network, thereby providing value to token holders.

The economic realities faced by cryptocurrency foundations similarly distort strategic decision-making: they bear all the costs of efforts, while the benefits (if any) are diffused socially. This distortion, combined with a lack of market feedback, leads to low efficiency in resource allocation, whether it be employee compensation, long-term high-risk projects, or short-term superficial favorable projects.

This is not the path to success. A prosperous network relies on a diversified ecosystem of product services (middleware, compliance services, developer tools, etc.), while companies constrained by the market are better at providing such supplies. Even though the Ethereum Foundation has achieved remarkable success, without the profitable products and services built by ConsenSys, how could the Ethereum ecosystem have today’s prosperity?

The space for cryptocurrency foundations to create value may be further compressed. The proposed market structure legislation (which is reasonable) focuses on the economic independence of relatively centralized organizations, requiring that value must originate from the programmatic functions of the network (such as ETH capturing value through the EIP-1559 mechanism). This means that both enterprises and cryptocurrency foundations must not support token value through off-chain profit-making activities, such as FTX's use of exchange profits to buy back and burn FTT to inflate its price. Such centralized value anchoring mechanisms create a reliance on trust (which is precisely the hallmark of securities: the collapse of FTX led to the plummet of FTT's price), thus the ban is justified; however, it also cuts off potential pathways based on market accountability (i.e., achieving value constraints through off-chain business revenue).

The cryptocurrency foundation has caused operational inefficiency.

In addition to legal and economic constraints, the cryptocurrency foundation also causes significant operational efficiency losses. Any founder who has experienced the structure of a cryptocurrency foundation understands the cost: in order to meet the formal (often performative) separation requirements, efficient collaboration teams must be dismantled. Engineers focused on protocol development need to collaborate daily with business development and marketing teams. However, under the structure of the cryptocurrency foundation, these functions are forced to be separated.

When facing such structural challenges, entrepreneurs often fall into an absurd dilemma:

• Can employees of the crypto fund coexist with company employees, for example, in a Slack channel?
• Can two organizations share a development roadmap?
• Can employees participate in the same offline meeting?

In fact, these issues are unrelated to the essence of decentralization, but they bring real losses: artificial barriers between functional dependencies delay development progress, hinder collaborative efficiency, and ultimately lead all participants to bear the degradation of product quality.

The cryptocurrency foundation has become a centralized gatekeeper.

The actual functions of the crypto foundation have seriously deviated from its initial positioning. Numerous cases show that the crypto foundation is no longer focused on decentralized development, but has instead been endowed with an increasingly expanding control — evolving into a centralized entity that controls the treasury keys, key operational functions, and network upgrade permissions. In most cases, the crypto foundation lacks substantive accountability to token holders; even if token governance can replace the board of directors of the crypto foundation, it merely replicates the agency problem of corporate boards, and the means of recourse are even scarcer.

The problem is that most crypto foundations require more than $500,000 to set up and take several months, accompanied by lengthy processes involving teams of lawyers and accountants. This not only hampers innovation but also sets cost barriers for startups. The situation has worsened to the point where it is increasingly difficult to find lawyers experienced in establishing foreign crypto foundation structures, as many have abandoned their practices — they now only serve as professional board members, collecting fees from dozens of cryptocurrency foundations.

In summary, many projects fall into the "shadow governance" of vested interest groups: tokens merely symbolize nominal ownership of the network, while the actual stewards are the crypto foundations and their hired directors. This structure increasingly conflicts with the legislative framework of emerging market structures, as the legislation encourages on-chain accountability systems (eliminating control) rather than off-chain opaque structures that merely decentralize control (for consumers, eradicating dependency on trust is far superior to hiding it). Mandatory disclosure obligations will also enhance the transparency of current governance, compelling project parties to eliminate control rather than entrusting it to a few individuals with unclear responsibilities.

Better solution: corporate structure

In a scenario where founders do not need to give up or hide their ongoing contributions to the network, and it is ensured that no one controls the network, the crypto foundation will lose its necessity for existence. This opens the way for a better architecture—one that can support long-term development, incentivize all participants collaboratively, while also meeting legal requirements.

Under this new paradigm, conventional development companies (i.e., enterprises that build networks from concept to reality) provide better vehicles for the continuous construction and maintenance of the network. Unlike crypto foundations, companies are able to:

• Efficient Capital Allocation
• Attract top talent by providing incentives beyond tokens.
• Responding to market forces through a feedback loop of work.

The company's structure inherently aligns with growth and substantive impact, without relying on charitable funding or vague missions.

However, concerns about the alignment of company incentives are not unfounded: when a company operates continuously, the possibility of network value appreciation benefiting both tokens and equity does indeed introduce real complexities. Token holders reasonably worry that certain companies may design network upgrade plans or retain specific privileges and permissions to ensure their equity gains precedence over token value.

The proposed market structure legislation addresses these concerns through its decentralized legal framework and control mechanisms. However, ensuring that incentive coordination continues to be necessary—especially when initial token incentives are exhausted due to the long-term operation of the project. Concerns about incentive coordination arising from the lack of formal obligations between companies and token holders will also persist: the legislation neither creates nor allows for any statutory fiduciary duties for token holders, nor does it grant token holders any enforceable rights regarding the company's ongoing efforts.

However, these concerns can be alleviated and do not constitute a legitimate reason to continue the model of cryptocurrency foundations. These concerns also do not require that tokens be infused with equity attributes—that is, a legal claim to the developers' ongoing efforts—otherwise, it would undermine the regulatory foundation that distinguishes them from ordinary securities. On the contrary, these worries highlight the need for tools: there is a need for continuous collaborative incentives through contractual and programmatic means, without compromising execution efficiency and substantive impact.

New Applications of Existing Tools in the Cryptocurrency Field

The good news is that collaborative incentive tools already exist. The only reason they are not widely adopted in the crypto industry is that using these tools under the SEC's action testing framework would trigger more stringent scrutiny.

However, under the control framework proposed by the market structure bill, the efficacy of the following mature tools will be fully unleashed:

Public Benefit Corporation (PBC) Structure

Development companies can register or transform into Public Benefit Corporations (PBC), which embed a dual mission: to generate profit while pursuing specific public benefits—here referring to supporting network development and health. PBCs provide founders with legal flexibility to prioritize network development, even if it may not maximize short-term shareholder value.

Network Revenue Sharing Mechanism

The network and decentralized autonomous organizations (DAOs) can create a sustainable incentive structure for enterprises by sharing network profits.

For example: A network with inflationary token supply can allocate a portion of the inflationary tokens to enterprises as revenue, while also calibrating the total supply through a revenue-based buyback and burn mechanism. When designed appropriately, such revenue sharing can direct most of the value towards token holders and establish a lasting direct connection between the success of the enterprises and the health of the network.

Milestone Attribution Mechanism

The company's token lock-up (i.e., the transfer restrictions that limit employees and investors from selling on the secondary market) must and should be tied to meaningful network maturity milestones. Such milestones may include:

• Network Usage Rate Threshold
• Key network upgrades successful (such as The Merge, etc.)
• Decentralized metrics (such as meeting specific control standards)
• Ecosystem Growth Goals

The current market structure bill proposes such mechanisms: to restrict insiders (such as employees and investors) from selling tokens on the secondary market before the tokens achieve economic independence (i.e., before the network tokens form their own economic model). These mechanisms ensure that early investors and team members have a strong incentive to continue building the network, preventing them from arbitraging before the network matures.

Contract Guarantee Terms

DAOs should and can negotiate contract agreements with enterprises to prevent network exploitation behaviors that harm the interests of token holders. This includes:

• Non-competition clause
• Ensure open access licensing agreements for intellectual property rights
• Transparency Obligations
• No token reclamation rights
• Right to terminate payment in the event of network harm

Programmatic Incentive System

When network participants (other than the development company) receive reasonable incentives, token holders will be better protected:

• Client Operator (Network-based Construction / Expansion / Diversification)
• Infrastructure provider (maintains network)
• Supply and Demand Providers (Enhancing Market Depth for All Network Users)

Incentives should be obtained through the allocation of programmatic tokens corresponding to contribution levels.

Such incentives not only fund participants' contributions but also prevent the commodification of protocol-level goods (where system value is captured by the technology stack outside the protocol level, such as the client level). Programmatic solutions to incentive issues help to solidify the decentralized economy of the entire system.

In summary, these tools provide greater flexibility, accountability, and durability compared to crypto foundations, while ensuring that the DAO and the network retain real sovereignty.

Implementation Plan: DUNA and BORG Architecture

Two emerging solutions: DUNA and BORG, provide efficient pathways for implementing the above solutions while eliminating redundant costs and opacity in the structure of cryptocurrency foundations.

Decentralized Non-Profit Association (DUNA)

DUNA grants DAO legal entity status, allowing it to enter into contracts, hold assets, and exercise statutory rights. These functions have traditionally been undertaken by crypto foundations. However, unlike foundations, DUNA does not require distorted operations such as offshore registered headquarters, discretionary supervisory committees, or complex tax structures.

DUNA creates legal capacity without generating legal hierarchies, purely serving as a neutral execution agent for the DAO. This minimalist structure reduces administrative burdens and centralization friction while enhancing legal clarity and decentralization. Moreover, DUNA can provide effective limited liability protection for token holders.

Overall, DUNA provides a powerful mechanism to enhance network incentive collaboration: allowing DAOs to contract with development companies for services, and executing rights through recourse, performance payments, and anti-exploitation protection, while ensuring that the DAO always maintains ultimate authority.

Control Theory Organization (BORG) Tool

BORG, as a technology for autonomous governance and operation, enables DAOs to migrate the "governance convenience" currently handled by crypto foundations, such as funding programs, security committees, and upgrade committees, to run on-chain. These substructures operate transparently under smart contract rules: permissioned access is set when necessary, but the accountability mechanisms are hard-coded. The BORG tool minimizes trust assumptions, strengthens accountability protection, and supports tax optimization frameworks.

DUNA and BORG jointly transfer power from informal off-chain entities such as foundations to a more accountable on-chain system. This is not only a philosophical preference but also a regulatory advantage. The proposed market structure legislation requires that "functional, administrative, transactional, or procedural actions" must be handled through a decentralized rule system rather than opaque centralized entities. Cryptocurrency projects and development companies adopting the DUNA and BORG framework can uncompromisingly meet these standards.

summary

The Crypto Foundation once led the cryptocurrency industry through regulatory winters, promoting technological breakthroughs and achieving unprecedented collaboration. When other frameworks fail, the Crypto Foundation often fills critical vacuums. Some Crypto Foundations may continue to exist, but for most projects, their value has become marginalized - merely a temporary solution to cope with regulatory hostility.

This era is coming to an end.

Emerging policies, incentive structure transformation, and industry maturity all point to the same future:

• Real Governance
• Substantive Collaboration
• Systematic operation

The cryptocurrency foundation is unable to meet these demands: its distorted incentives, hindrance to scaling, and entrenchment of centralization.

The sustainability of the system does not rely on the self-discipline of the benevolent, but rather on deeply anchoring each participant's self-interest motive to the overall success. This is the foundation of the prosperity of corporate systems for centuries. The crypto space urgently needs a similar structure—coexistence of public good and private interest, internalization of accountability, and minimization of control by design.

The new era of cryptocurrency is not built on expediency, but rather on a scalable system that possesses real incentives, real accountability, and real decentralization.