a16z's significant assessment: The era of Crypto Assets foundations comes to an end, and DAO and corporate governance usher in a new paradigm of Decentralization.

Written by: Miles Jennings, Head of Policy and General Counsel at a16z crypto

Compiled by: Luffy, Foresight News

Original Title: a16z: The End of the Cryptocurrency Foundation Era

It's time for the crypto industry to move away from the foundation model. As a non-profit organization supporting the development of blockchain networks, foundations were once a clever legal pathway to promote industry growth. But nowadays, any founder who has launched a crypto network will tell you: nothing holds you back more than a foundation. The friction caused by foundations far exceeds the additional value of decentralization they provide.

With the introduction of a new regulatory framework by the U.S. Congress, the crypto industry has welcomed a rare opportunity: to say goodbye to foundations and instead build a new system with better incentive mechanisms, accountability measures, and scalability.

After discussing the origins and flaws of foundations, this article will elaborate on how crypto projects abandon the foundation structure in favor of ordinary development companies, leveraging emerging regulatory frameworks to achieve growth. I will explain one by one how companies are better at allocating capital, attracting top talent, and responding to market forces, making them a superior vehicle for driving structural incentive compatibility, growth, and influence.

An industry that seeks to challenge big tech companies, big banks, and big governments cannot rely on altruism, charitable funding, or vague missions. The scaled development of the industry needs to rely on incentive mechanisms. If the crypto industry wants to deliver on its promises, it must rid itself of outdated structural crutches.

Foundation, once a necessary choice

Why did the cryptocurrency industry initially choose the foundation model?

In the early days of the crypto industry, many founders sincerely believed that non-profit foundations would help promote decentralization. The foundation was supposed to serve as a neutral steward of network resources, holding tokens and supporting ecological development without mixing in direct commercial interests. Theoretically, foundations are an ideal choice for promoting trustworthy neutrality and long-term public interest. To be fair, not all foundations have issues. For example, the Ethereum Foundation has made significant contributions to the development of the Ethereum network, and its team members have accomplished difficult and highly valuable work under challenging constraints.

However, with the passage of time, regulatory dynamics and intensified market competition have caused the foundation model to gradually deviate from its original intention. The U.S. Securities and Exchange Commission (SEC)'s decentralized testing based on "effort level" further complicates the situation, encouraging founders to abandon, conceal, or avoid participating in the networks they create. Increased competition has further prompted projects to see foundations as a shortcut to decentralization. In such cases, foundations are often reduced to a stopgap measure: by transferring power and ongoing development efforts to "independent" entities, in the hope of circumventing securities regulation. While this approach makes sense in the face of legal games and regulatory hostility, foundations are flawed by the fact that they often lack coherent incentives, inherently fail to optimize growth, and entrench centralized control.

As the congressional proposal shifts towards a maturity framework based on "control", the separation and fiction of the foundation is no longer necessary. This framework encourages founders to relinquish control, but does not force them to abandon or conceal subsequent development work. Compared to the "effort" based framework, it also provides a clearer definition for decentralization.

With the easing of pressure, the industry can finally say goodbye to stopgap measures and shift towards structures that are more suited for long-term sustainability. The foundation has its historical role, but it is no longer the best tool for the future.

Myths of the Foundation Incentive Mechanism

Supporters believe that the foundation's interests align more closely with those of the token holders, as they do not have shareholders and can focus on maximizing the value of the network.

However, this theory overlooks the actual operational logic of the organization. Eliminating the company's equity incentives does not eliminate interest inconsistencies, but often institutionalizes them. Foundations lacking profit motives miss clear feedback loops, direct accountability mechanisms, and market constraints. The financing model of the foundation is a sponsorship model: selling tokens for fiat currency, but the use of these funds lacks a clear mechanism that links expenditure to outcomes.

Spending other people's money without having to bear any responsibility rarely produces the best results.

The accountability mechanism is an intrinsic property of the company's structure. Enterprises are constrained by market discipline: capital is spent in pursuit of profits, and financial results (revenue, profit margin, return on investment) are objective indicators of whether efforts are successful. Shareholders can evaluate management performance based on this and exert pressure when targets are not met.

In contrast, foundations typically operate at a loss indefinitely and are not held accountable for the consequences. Because blockchain networks are open and permissionless, they often lack a clear economic model, making it nearly impossible to tie the foundation's work and expenditures to value capture. The result is that crypto foundations are shielded from the real tests of market forces.

Aligning Foundation members with the long-term success of the network is another challenge. Foundation members have weaker incentives than company employees, and their compensation is typically made up of tokens and cash (from the Foundation Token Sale) rather than a combination of tokens, cash (from equity sales), and equity. This means that the incentives of foundation members are susceptible to sharp fluctuations in the token price in the short term, while the incentive mechanism of the company's employees is more stable and long-term. Solving this flaw is not an easy task, and successful companies grow and bring ever-increasing benefits to their employees, which successful foundations cannot. This makes it difficult to maintain incentive compatibility and may lead Foundation members to seek external opportunities, raising concerns about potential conflicts of interest.

Legal and Economic Constraints of the Foundation

The problems of the foundations are not only due to distorted incentive mechanisms, but legal and economic constraints also limit their ability to act.

Many foundations are legally unable to construct related products or engage in certain commercial activities, even if these activities can significantly benefit the network. For example, most foundations are prohibited from operating profit-oriented consumer-facing businesses, even if such businesses can bring substantial traffic to the network and enhance the value of the tokens.

The economic realities faced by the foundation have also distorted strategic decision-making. The foundation bears the direct costs of efforts, while the benefits are dispersed and socialized. This distortion, coupled with a lack of clear market feedback, makes it even more difficult to allocate resources effectively, including employee compensation, long-term high-risk projects, and short-term explicit advantage projects.

This is not the recipe for success. A successful network relies on the development of a range of products and services, including middleware, compliance services, developer tools, and more; And companies that are subject to market discipline are better at providing these. Even though the Ethereum Foundation has made a lot of progress, who would think that Ethereum would be better off without the products and services developed by the for-profit company ConsenSys?

Opportunities for foundations to create value are likely to be further limited. The proposed market structure legislation currently focuses on the token's economic independence from any centralized organization, requiring that the value derive from the programmatic operation of the network. This means that neither the company nor the foundation can support the value of the token through off-chain profitable businesses, such as FTX used to buy and burn FTT with exchange profits to maintain its price. This is justified because these mechanisms introduce the trust dependency that is characteristic of securities.

The efficiency of foundation operations is low

In addition to legal and financial constraints, foundations can create serious operational inefficiencies. Any founder who has managed a foundation knows the cost of breaking up high-performing teams to meet formal segregation requirements. Engineers focused on protocol development are often required to collaborate with business development, marketing, and marketing teams on a daily basis, but these functions are siloed under the Foundation structure.

When dealing with these structural challenges, entrepreneurs are often troubled by some absurd questions: Can fund employees be in the same Slack channel as company employees? Can the two organizations share a roadmap? Can they attend the same off-site meeting? The fact is, these questions have no substantial impact on decentralization, but they bring real costs: the artificial barriers between interdependent functions slow down development speed, hinder coordination, and ultimately reduce product quality.

The foundation has become a centralized gatekeeper

In many cases, the role of crypto foundations has strayed far from its original mission. Countless examples have shown that foundations are no longer focused on decentralized development, but instead have been given more and more control, transforming into a centralized role that controls treasury keys, key operational functions, and network upgrades. In many cases, there is a lack of accountability mechanisms for foundation members; Even if token holder governance could replace foundation directors, it would only replicate the principal-agent model in a company's board of directors.

What makes matters worse is that setting up most foundations costs over $500,000 and involves collaborating with a large number of lawyers and accountants for months. This not only slows down the pace of innovation but is also very costly for startups. The situation has become so dire that it is increasingly difficult to find lawyers with experience in establishing foreign foundations, as many have given up their practice to charge fees as board members in dozens of crypto foundations.

In other words, many projects end up with a kind of "shadow governance" dominated by vested interests: tokens may nominally represent "ownership" of the network, but are actually at the helm of the foundation and its hired directors. These structures increasingly conflict with proposed market structure legislation, which rewards on-chain, more responsible, control-removing systems rather than supporting more opaque off-chain structures. For consumers, eliminating trust dependencies is far more beneficial than hiding them. Mandatory disclosure obligations would also bring greater transparency to the current governance structure, creating significant market pressure to remove control of the project rather than handing it over to a few who lack accountability.

A better and simpler alternative: Company

If the founders do not need to give up or hide their efforts for the network to continue, and just need to ensure that no one controls the network, then the foundation is no longer necessary. This opens the door to a better structure—one that can support the long-term development of the network, align the incentives of all participants, and meet legal requirements.

In this new context, ordinary development companies provide a better vehicle for the continuous construction and maintenance of the network. Unlike foundations, companies can efficiently allocate capital, attract top talent through more incentives (beyond tokens), and respond to market forces through a feedback loop of work. Companies structurally align with growth and influence, rather than relying on charitable funding or vague authorizations.

Indeed, concerns about the company and its incentive mechanisms are not unfounded. The existence of the company creates the potential for network value to flow simultaneously to both the tokens and the company's equity, which introduces real complexity. Token holders have reason to worry that a company might prioritize equity over token value by designing network upgrades or retaining certain privileges.

The proposed market structure legislation provides assurances for these concerns through its statutory construction of decentralization and control. However, ensuring incentive compatibility remains necessary, especially in cases where projects have been operational for a long time and initial token incentives are eventually exhausted. Furthermore, due to the lack of formal obligations between companies and token holders, concerns about incentive compatibility will persist: the legislation does not impose formal fiduciary duties to token holders, nor does it grant token holders enforceable rights to compel companies to make ongoing efforts.

However, these concerns can be addressed, and are not sufficient to justify continued adoption of the Foundation. Nor do these concerns require tokens to have equity attributes, which would weaken their basis for regulatory treatment that is different from that of ordinary securities. Rather, they highlight the need for tools to achieve incentive compatibility through contractual and programmatic approaches without compromising execution and influence.

New Uses of Existing Tools in the Cryptocurrency Field

The good news is that incentive-compatible tools already exist. The only reason they have not become widespread in the crypto industry is that using these tools would invite more scrutiny under the SEC's framework based on "effort level."

However, under the framework based on "control" proposed by the market structure legislation, the power of the following mature tools can be fully unleashed:

Public welfare enterprises. Development companies can register or transform into public welfare enterprises, which undertake dual missions: pursuing profit while achieving specific public interests, namely supporting the development and health of the network. Public welfare enterprises grant founders legal flexibility, allowing them to prioritize network development, even if this may not maximize short-term shareholder value.

Network revenue sharing. Networks and decentralized autonomous organizations (DAOs) can create and implement ongoing incentive structures for companies by sharing network revenue. For example, a network with a supply of inflation tokens can enable revenue sharing by allocating a portion of inflation tokens to companies, while incorporating a revenue-based buyback mechanism to calibrate the overall supply. A properly designed revenue sharing mechanism directs the majority of value to token holders, while creating a direct, lasting link between a company's success and the health of the network.

Milestone token vesting. A company's token lock-up (a transfer restriction that prohibits employees and investors from selling tokens on the secondary market) should be tied to meaningful network maturity milestones. These milestones can include network usage thresholds, successful network upgrades, decentralization initiatives, or ecological growth goals. The current market structure legislation proposes such a mechanism that restricts insiders (such as employees and investors) from selling tokens on the secondary market until the tokens become economically independent (i.e., the network tokens have their own economic model). These mechanisms ensure that early investors and team members have a strong incentive to continue building the network and avoid cashing out before the network matures.

Contract protection. DAOs should negotiate and sign contracts with companies to prevent the misuse of the network in a manner that harms the interests of token holders. This includes non-compete clauses, licensing agreements that ensure open access to intellectual property, transparency obligations, and the right to reclaim tokens or halt further payments in the event of misconduct that damages the network.

Programmatic incentives. When network participants receive incentives for their contributions through the programmatic distribution of tokens, token holders will be better protected. This incentive mechanism not only helps to fund participants' contributions but also prevents the commodification of the protocol layer (the flow of system value to non-protocol technology stack layers, such as the client layer). Addressing incentive issues programmatically helps to strengthen the decentralized economy of the entire system.

These tools collectively provide greater flexibility, accountability, and permanence than the foundation, while allowing DAOs and networks to retain true sovereignty.

Implementation Path: DUNAs and BORGs

Two emerging solutions (DUNA and BORGs) provide a simplified approach to implementing these solutions while eliminating the complexity and opacity of the foundation structure.

Decentralized Unincorporated Nonprofit Association (DUNA)

DUNA grants DAOs legal personality, enabling them to enter into contracts, hold property, and exercise legal rights, functions traditionally performed by foundations. However, unlike foundations, DUNA does not require establishing a headquarters abroad, setting up a discretionary supervisory board, or engaging in complex tax structuring.

DUNA has created a legal authority that does not require a legal hierarchy, 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. Furthermore, DUNA can provide effective limited liability protection for token holders, an area of increasing attention.

Overall, DUNA provides a powerful tool for enforcing incentive-compatible mechanisms around the network, enabling DAOs to contract services with development companies and enforce those rights through the repossession of tokens, performance-based payments, and prevention of exploitative behavior, while retaining the ultimate authority of the DAO.

Cybernetic Organization Tooling (BORGs)

The BORGs technology developed for autonomous governance and operation enables DAOs to migrate many "governance facilitation functions" currently handled by foundations (such as funding programs, security committees, upgrade committees) onto the blockchain. By moving on-chain, these substructures can operate transparently under smart contract rules: permissions can be set for access when necessary, but accountability mechanisms must be hard-coded. Overall, BORGs tools can minimize trust assumptions, enhance accountability protection, and support tax optimization frameworks.

Together, DUNA and BORGs are shifting power away from informal off-chain institutions such as foundations to more accountable on-chain systems. This is not only a philosophical preference, but also a regulatory advantage. The proposed market structure legislation would require "functional, administrative, clerical or sectoral actions" to be dealt with through a decentralized, rules-based system, rather than through an opaque, centrally controlled entity. By adopting the DUNA and BORGs architecture, crypto projects and development companies can meet these standards without compromise.

Conclusion: Say goodbye to expediency and embrace true decentralization

The foundation has led the cryptocurrency industry through difficult regulatory periods and has facilitated some incredible technological breakthroughs and unprecedented levels of collaboration. In many cases, the foundation has filled critical gaps when other governance structures could not function, and many foundations may continue to thrive. However, for the majority of projects, their role is limited and serves only as a temporary solution to regulatory challenges.

Such an era is coming to an end.

Emerging policies, changing incentive structures, and industry maturity all point in the same direction: towards true governance, genuine incentive compatibility, and real systematization. Foundations are unable to meet these demands; they distort incentives, hinder scalability, and entrench centralized power.

The sustainability of the system does not rely on trusting the "good people", but on ensuring that each participant's self-interest is meaningfully tied to the overall success. This is the reason why corporate structures have thrived for centuries. The crypto industry needs a similar structure: public interest coexisting with private enterprises, with accountability embedded within, and control minimized by design.

The next era of cryptocurrency will not be built on expediency, but on scalable systems: systems with real incentives, real accountability mechanisms, and real decentralization.