It’s time for the crypto industry to move on from its foundation model. Foundations — nonprofit organizations that support the development of a blockchain network — were once a clever legal pathway to progress. But today, ask any founder who’s launched a network and they’ll tell you: Few things slow you down more. Foundations now create more friction than decentralization.
With new U.S. regulatory frameworks emerging in Congress, the crypto industry has a rare moment to leave the foundation, and this friction, behind — an opportunity to build with better alignment, accountability, and scale in mind.
After addressing the origins and shortcomings of foundations below, I’ll discuss how crypto projects can forego foundation structures and instead use ordinary developer companies to take advantage of emerging regulatory frameworks and approaches. Throughout, I’ll explain how companies are better able to deploy capital, attract top talent, and respond to market forces, making them the superior vehicle for driving structural alignment, growth, and impact.
An industry seeking to scale and challenge Big Tech, Big Banks, and Big Government cannot hinge on altruism, charitable funding, or vague mandates. Industries scale on incentives. If the crypto industry is to fulfill its promise, it must mature beyond structural crutches that no longer serve it.
So, how did crypto arrive at the foundation model in the first place?
In crypto’s early days, many founders turned to nonprofit foundations out of a sincere belief that these entities would help foster decentralization. Foundations were meant to serve as neutral stewards of network resources, holding tokens and supporting ecosystem growth without direct commercial interests. In theory, foundations were optimal for promoting credible neutrality and long-term public benefit. And to be fair, not all foundations have been problematic. Some, like the Ethereum Foundation, have been a boon to the growth and development of the networks they support, staffed by committed individuals doing difficult and incredibly valuable work under challenging constraints.
But over time, regulatory dynamics and increasing market competition have diverted the foundation model away from its original conception. The SEC’s efforts-based decentralization test complicated things — encouraging founders to abandon, obscure, or otherwise forgo involvement in the networks they created. Increased competition further incentivized projects to look to foundations as a decentralization shortcut. Under these conditions, foundations are now often just convoluted workarounds: a way to shift authority and ongoing development efforts to an “independent” entity in hopes of avoiding securities regulation. While that approach was justifiable in the face of lawfare and regulatory hostility, it has made the shortcomings of foundations impossible to ignore — they often lack coherent incentive alignment, are structurally unable to optimize for growth, and entrench centralized control.
With Congressional proposals now moving toward a control-based maturity framework, the separation and fiction of foundations is no longer necessary. A control-based framework encourages founders to relinquish control without forcing them to abandon or obscure their ongoing building. It also provides a less amorphous (and abusable) definition of decentralization to build towards as compared to efforts-based frameworks.
With this pressure lifting, the industry can finally move beyond workarounds and toward structures better built for long-term sustainability. Foundations served a purpose. But they are no longer the best tool for what comes next.
Proponents argue that foundations offer better alignment with tokenholders because foundations lack shareholders and can focus exclusively on maximizing network value.
But this theory overlooks how organizations actually function. Removing the equity-based incentives of corporations doesn’t eliminate misalignment — it often institutionalizes it. Without a profit motive, foundations lack clear feedback loops, direct accountability, and market-enforced discipline. The foundation funding model is one of patronage: Tokens are allocated and then sold for fiat, and that capital is spent without a clear mechanism to tie expenditures to outcomes.
People spending other people’s money, with minimal accountability, rarely optimize for impact.
Accountability is built into corporate structures. Companies are bound by the discipline of the market: They expend capital in pursuit of profit, and the financial results — revenues, margins, and returns on investment — serve as objective indicators of whether those efforts succeeded. Shareholders, in turn, can evaluate performance, and apply pressure, when management falls short of clear goals.
Foundations, by contrast, are typically set up to operate indefinitely, at a loss, and without consequence. And because blockchain networks are open and permissionless, and often lack clear economic models, mapping the efforts and expenditures of the foundation onto value capture is nearly impossible. As a result, crypto foundations are shielded from the realities of market forces that demand hard decisions.
Aligning foundation employees with the long-term success of the network is yet another challenge. Foundation employees have weaker incentives than company employees, as they are generally only compensated in a mix of tokens and cash (funded by foundation token sales), as opposed to a mix of tokens, cash (funded by equity sales), and equity. This means foundation employees have shorter-term incentives that are subject to the extreme volatility of public token prices, whereas company employees have more stable long-term incentives. Yet addressing this shortfall is difficult — successful companies grow and deliver ever increasing benefits to their employees, successful foundations don’t. This makes maintaining alignment hard and can lead to foundation employees seeking external opportunities, raising concerns about potential conflicts of interest.
Foundations don’t just have distorted incentives. Legal and economic limitations also constrain their ability to act.
Many foundations are not legally able to build adjacent products or engage in types of commercial activity — even where it would substantially benefit the network. For example, most foundations would be prohibited from operating a for-profit consumer-facing business, even if that business generated significant transactions flows for the network, driving value to tokenholders.
The economic reality facing foundations also distorts strategic decisionmaking. Foundations bear the direct costs of their efforts while the benefits, if any, are diffuse and socialized. This distortion, and lack of clear market feedback, makes it more difficult to effectively deploy resources, including on employee salaries, long-term risky projects, and short-term optically advantageous projects.
This is not a recipe for success. Successful networks depend upon the development of a wide array of products and services — middleware, compliance services, developer tooling, and so on — that market-disciplined companies are better able to provide. Even with all the progress achieved by the Ethereum Foundation, does anyone think that Ethereum would be better off without all the products and services built by the for-profit ConsenSys?
And opportunities for foundations to drive value are likely going to become even more constrained. Proposed market structure legislation currently (and justifiably) focuses on the economic independence of tokens from any centralized organization, requiring instead that value be derived from the programmatic functioning of a network (e.g., the way ETH accrues value under EIP-1559). That means neither companies nor foundations will be permitted to support token value through offchain profit-generating businesses — such as the way FTX propped up the value of FTT by using the profits of its exchange to buy and burn FTT. This makes sense as these centrally controlled value-tethering mechanisms introduce trust dependencies that are the hallmarks of securities (when FTX collapsed, so too did the price of FTT). However, the prohibition of such mechanisms removes a potential pathway for market-based accountability (revenue generation through offchain businesses).
Beyond legal and economic constraints, foundations also introduce significant operational inefficiencies. Any founder who has navigated a foundation knows the cost of breaking up a high-functioning team to satisfy formal, often performative, separation requirements. Engineers focused on protocol development often collaborate daily with business development, go-to-market, and marketing teams — yet under foundation structures, these functions are siloed.
In navigating these structural challenges, entrepreneurs are regularly burdened with absurd questions they never dreamed would matter: Can foundation employees be in the same Slack channel as company employees? Can the organizations share a roadmap? Can employees even attend the same offsite? The truth is, these questions don’t really matter for decentralization, but they nevertheless come with real costs: Artificial barriers between interdependent functions slow development, inhibit coordination, and ultimately degrade product quality for everyone.
The intended role of crypto foundations has, in many cases, drifted far from the original mandate. There are countless examples where foundations are no longer focused on decentralized development but are instead given increasing amounts of control — transforming them into centralizing actors that control treasury keys, critical operational functions, and network-upgrade rights. In many cases, foundations lack real accountability to tokenholders; and even where tokenholder governance can replace foundation directors, it only replicates the principal-agent problems seen in corporate boardrooms, but with fewer tools for recourse.
Compounding the issue, most foundation setups require projects to spend upwards of $500,000 and several months working with an army of lawyers and accountants. This not only slows innovation, it’s cost prohibitive for small startups. The situation has gotten so bad that it’s now increasingly difficult to even find attorneys with experience setting up foreign foundation structures because many have given up their practices. Why? Because they now just collect fees as professional board members on dozens of crypto foundations.
Read. That. Again.
All told, many projects have ended up with a kind of “shadow governance” of entrenched interests: Tokens may represent nominal “ownership” of the network, but it is the foundation and its hired directors that steer the ship. These structures are increasingly incompatible with proposed market structure legislation that rewards onchain, more accountable systems that eliminate control as opposed to the more opaque, offchain structures that merely disperse control — eliminating trust dependencies is significantly better for consumers than merely hiding them. Mandatory disclosure obligations will also bring greater transparency to current governance structures, creating significant market-based pressure on projects to eliminate control rather than vest it in a few unaccountable hands.
In a world where founders no longer need to abandon or hide their ongoing efforts on behalf of a network, and only need to ensure no individual controls the network, foundations will no longer be necessary. That opens the door to better structures — ones that support long-term development and align incentives across all actors and participants, while still satisfying legal requirements.
In this new context, ordinary developer companies — the companies building networks from conception to reality — offer a superior vehicle for the continued building and maintenance of networks. Unlike foundations, companies can deploy capital efficiently, attract top talent through offering more than just tokens, and respond to market forces through feedback loops on their work. Companies are structurally aligned with growth and impact, not dependent on charitable funding or vague mandates.
That said, concerns about companies and incentive alignment are not without merit. Where companies persist, the potential for value accrual from a network to both tokens and to corporate equity introduces real complexity. It’s reasonable for tokenholders to worry that a particular company might design network upgrades, or reserve certain privileges and permissions, in ways that favor its own equity over token value.
Proposed market structure legislation provides safeguards against these concerns through its statutory construction of decentralization and control. But ensuring incentive alignment will nevertheless continue to be necessary, particularly the longer a project operates and as its initial token incentives eventually run out. And fears about incentive alignment driven by the lack of formal obligations between the company and tokenholders will persist: Legislation does not create or allow for formal fiduciary duties to tokenholders, nor does it empower tokenholders with enforceable rights to a company’s ongoing efforts.
But these concerns can be addressed and don’t justify continuing to use foundations. Nor do these concerns require tokens to be imbued with the qualities of equity — statutory rights to the ongoing efforts of developers — which would undermine the basis for different regulatory treatment from ordinary securities. Instead, these concerns highlight the need for tools that continue to align incentives — contractually and programmatically — without compromising execution and impact.
The good news is tools to align incentives already exist. The only reason they haven’t yet proliferated in the crypto industry is because, under the SEC’s efforts-based framework, using these tools would have brought increased scrutiny.
But under the control-based framework proposed in market structure legislation, the power of the following well-established tools can be fully unleashed.
Public Benefit Corporations. Developer companies can incorporate or convert into Public Benefit Corporations (PBCs), which embed a dual mandate: to generate profit while pursuing a specific public benefit — in this case, supporting the growth and health of a network. PBCs give founders the legal flexibility to prioritize network development, even where it may not maximize short-term shareholder value.
Network revenue sharing. Networks and decentralized autonomous organizations (DAOs) can create and implement recurring incentive structures for companies through sharing network revenue.
For example, a network with an inflationary token supply could share revenue with a company by awarding a portion of that inflationary supply to them, balanced against a revenue-based buy-and-burn mechanism to calibrate the overall supply. When designed properly, such a revenue-share could drive the majority of value to tokenholders while creating a direct, durable link between the company’s success and the health of the network.
Milestone-vesting. The company’s token lockups — transfer restrictions that prohibit company employees and investors from being able to sell their tokens on secondary markets — can and should be tied to meaningful network maturity milestones. These milestones could include things like network usage thresholds; successful network upgrades (such as The Merge and others); decentralization measures, like meeting specific control criteria; or ecosystem growth targets.
Current market structure legislation proposes one such mechanism, restricting insiders (e.g. employees and investors) from being able to sell their tokens in secondary markets until those tokens are economically independent of the company (that is, until the network token has its own economic model). These mechanisms can ensure that early investors and team members have strong incentives to continue building the network and do not enrich themselves prior to the network being mature.
Contractual protections. DAOs can and should negotiate contractual agreements with companies that prevent network exploitation in ways that are adverse to tokenholders. This includes non-compete clauses, licensing arrangements that ensure open access to IP, transparency obligations, and rights to claw back unearned tokens — or halt further payments in the event of misbehavior that hurts the network.
Programmatic incentivization. Tokenholders are also better protected when network participants beyond developer companies — like client operators who build on top of, extend, and diversify a network; infrastructure providers who help maintain the network; or supply/demand providers who provide meaningful depth to the network for all its users — are properly incentivized via programmatic distributions of tokens in exchange for their contributions.
Such incentivization not only helps to fund participant contributions, it also guards against the protocol layer being commoditized (the value of the system accruing to a layer of the tech stack that isn’t the protocol, such as the client layer). Addressing incentivization programmatically helps bolster the entire system’s decentralized economy.
Together, these tools offer far more flexibility, accountability, and durability than foundations, while enabling DAOs and networks to retain true sovereignty.
Two emerging approaches — the DUNA and BORGs — offer a streamlined path to implementing these solutions while eliminating the overhead and opacity of foundation structures.
The Decentralized Unincorporated Nonprofit Association (DUNA) legitimizes DAOs as legal entities and enables them to enter into contracts, hold property, and enforce legal rights — functions traditionally offloaded to foundations. But unlike foundations, the DUNA does not require contortions like headquartering in foreign domiciles, discretionary oversight boards, or complex tax structuring.
The DUNA creates legal capacity without legal hierarchy — serving purely as neutral execution agents for the DAO. This structural minimalism reduces administrative overhead and centralizing friction while enhancing legal clarity and decentralization. Further, the DUNA can provide effective limited liability protection to tokenholders, a growing area of concern.
All told, the DUNA provides a powerful mechanism for enforcing incentive alignment around a network, enabling DAOs to contract with a developer company to deliver services. And it enables DAOs to enforce those rights through clawbacks, performance-based payments, and protections against exploitative behavior — all while preserving the DAO’s role as the ultimate authority.
Cybernetic organization (BORG) tooling, technologies developed for autonomous governance and operation, enable DAOs to migrate many of the “governance conveniences” currently handled by foundations — grant programs, security councils, upgrade committees — so that they function onchain. By coming onchain, these substructures can operate transparently under the rules of the smart contract: with permissioned access where necessary, but with accountability mechanisms hardcoded in. Collectively, BORG tooling can minimize trust assumptions, enhance liability protection, and support tax-efficient structuring.
Together, DUNAs and BORGs shift power from informal offchain bodies like foundations to much more accountable onchain systems. This isn’t just a philosophical preference — it’s a regulatory advantage. Proposed market structure legislation requires that “functional, administrative, clerical, or ministerial actions” be handled through decentralized, rules-based systems rather than opaque, centrally-controlled entities. By embracing DUNA and BORG structuring, crypto projects and developer companies can meet those standards without compromise.
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Foundations shepherded the crypto industry through tough regulatory times. They also enabled some incredible technological breakthroughs and unprecedented levels of coordination. In many cases, foundations filled critical gaps when no other structures could. And many foundations will likely continue to thrive. But for most projects, their usefulness has been limited — a temporary solution to regulatory hostility.
That era is ending.
Emerging policy, shifting incentive structures, and industry maturation all point in the same direction: toward real governance, real alignment, and real systems. Foundations are ill-equipped to meet these needs. They distort incentives, hinder scaling, and entrench centralized power.
Systems endure not by trusting good actors, but by ensuring that every actor’s self-interest is meaningfully tethered to the success of the whole. That’s why corporate structures have thrived for centuries. We need similar structures in crypto, where public benefit and private enterprise coexist, where accountability is embedded, and where control is minimized by design.
The next era of crypto won’t be built on workarounds. It will be built on systems that scale — systems with real incentives, real accountability, and real decentralization.
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Miles Jennings is Head of Policy & General Counsel for a16z crypto, where he advises the firm and its portfolio companies on decentralization, DAOs, governance, NFTs, and state and federal securities laws.
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