Bid Farewell to Expedients, Welcome True Decentralization.
Written by: Miles Jennings, Head of Policy and General Counsel at a16z crypto
Translated by: Luffy, Foresight News
It's time for the crypto industry to move beyond the foundation model. As non-profit organizations supporting blockchain network development, foundations were once a clever legal pathway to drive industry progress. However, today, any founder who has launched a crypto network will tell you that nothing holds back progress more than foundations. The friction caused by foundations far exceeds the decentralization value they add.
With the emergence of a new regulatory framework in the US Congress, the crypto industry has a rare opportunity: to bid farewell to foundations and build a new system with better incentive mechanisms, accountability, and scalability.
After exploring the origins and flaws of foundations, this article will explain how crypto projects can abandon foundation structures and embrace ordinary development companies, leveraging emerging regulatory frameworks for growth. I will explain step by step how companies are better at allocating capital, attracting top talent, responding to market forces, and serving as more optimal carriers for structural incentive compatibility, growth, and impact.
An industry seeking to challenge big tech companies, big banks, and big government cannot rely on altruism, charitable funding, or vague missions. Industry-scale development depends on incentive mechanisms. If the crypto industry wants to fulfill its promise, it must shed its no longer applicable structural crutches.
[The rest of the translation follows the same professional and accurate approach]When addressing these structural challenges, entrepreneurs are often troubled by some absurd questions: Can foundation staff and company staff be in the same Slack channel? Can two organizations share a roadmap? Can they attend the same remote meeting? The fact is that these issues have no substantial impact on decentralization, but they bring real costs: artificial barriers between interdependent functions slow down development, hinder coordination, and ultimately reduce product quality.
Foundation Degenerates into a Centralized Gatekeeper
In many cases, the role of crypto foundations has far deviated from their original mission. Numerous cases show that foundations are no longer focused on decentralized development, but instead are given more and more control, transforming into a centralized role that controls treasury keys, critical operational functions, and network upgrade rights. In many cases, foundation members lack accountability mechanisms; even if token holder governance can replace foundation directors, it merely replicates the agency delegation model found in corporate boards.
To make matters worse, most foundations require over $500,000 to establish and collaborate with a large number of lawyers and accountants for months. This not only slows down innovation but is also costly for startups. The situation has become so bad that it is increasingly difficult to find lawyers with experience establishing foreign foundations, as many lawyers have abandoned their practice and instead collect fees as board members in dozens of crypto foundations.
In other words, many projects ultimately form a "shadow governance" led by vested interests: tokens may nominally represent network "ownership," but the foundation and its hired directors are actually in control. These structures increasingly conflict with proposed market structure legislation, which rewards on-chain, more accountable, control-eliminating systems rather than supporting more opaque off-chain structures. For consumers, eliminating trust dependencies is far more beneficial than hiding them. Mandatory disclosure obligations will also bring greater transparency to current governance structures, creating massive market pressure to eliminate control rather than vest it in a few unaccountable individuals.
A Better and Simpler Alternative: Companies
If founders do not need to give up or conceal their continued efforts for the network, and only need to ensure that no one controls the network, foundations are no longer necessary. This opens the door to a better structure that can support the network's long-term development, align incentives for all participants, and meet legal requirements.
In this new context, ordinary development companies provide a superior carrier for the network's continuous construction and maintenance. Unlike foundations, companies can efficiently allocate capital, attract top talent through more incentives (beyond tokens), and respond to market forces through work feedback loops. Companies are structurally aligned with growth and impact, without relying on charitable funding or vague mandates.
Of course, concerns about companies and their incentive mechanisms are not unfounded. The existence of companies means that network value could flow to both tokens and company equity, which brings real complexity. Token holders have reason to worry that a company might design network upgrades or retain certain privileges that prioritize equity over token value.
The proposed market structure legislation provides safeguards for these concerns through its statutory construction of decentralization and control. However, ensuring incentive compatibility is still necessary, especially when the project has been operating for a long time and initial token incentives are eventually exhausted. Moreover, due to the lack of formal obligations between companies and token holders, concerns about incentive compatibility will persist: legislation does not prescribe formal fiduciary responsibilities to token holders, nor does it grant token holders enforceable rights to demand continued effort from companies.
But these concerns can be addressed and are insufficient reasons to continue using foundations. These concerns also do not require tokens to have equity attributes, which would undermine the basis for their different regulatory treatment from ordinary securities. Instead, they highlight the need for tools that achieve incentive compatibility through contracts and programmable methods without compromising execution power and impact.
Existing Tools in New Uses in Crypto
The good news is that tools for incentive compatibility already exist. The only reason they have not become widespread in the crypto industry is that using them would invite more scrutiny under the SEC's "effort" framework.
But under the "control" framework proposed in market structure legislation, the power of the following mature tools can be fully unleashed:
Public Benefit Corporations. Development companies can register or transform into public benefit corporations, which have a dual mission: pursuing profits while achieving specific public interests, namely supporting network development and health. Public benefit corporations provide legal flexibility for founders to prioritize network development, even if this may not maximize short-term shareholder value.
Network Revenue Sharing. Networks and DAOs can create and implement continuous incentive structures for companies by sharing network revenue. For example, a network with an inflationary token supply could allocate a portion of inflation to companies while incorporating a revenue-based buyback mechanism to calibrate overall supply. Well-designed revenue sharing mechanisms can direct most value to token holders while establishing a direct, enduring connection between company success and network health.
Milestone-Based Token Vesting. Token lockups for companies (transfer restrictions preventing employees and investors from selling tokens in secondary markets) should be tied to meaningful network maturity milestones. These milestones can include network usage thresholds, successful network upgrades, decentralization measures, or ecosystem growth targets. Current market structure legislation proposes such a mechanism: restricting insiders (such as employees and investors) from selling tokens in secondary markets before the token achieves economic independence (i.e., the network token has its own economic model). These mechanisms can ensure early investors and team members have strong motivation to continue building the network, avoiding premature cashing out before network maturity.
Contractual Protections. DAOs should negotiate contracts with companies to prevent exploiting the network in ways that harm token holders. This includes non-compete clauses, licensing agreements ensuring open access to intellectual property, transparency obligations, and rights to reclaim tokens or stop further payments if actions detrimental to the network occur.
Programmable Incentives. Token holders will be better protected when network participants are incentivized for their contributions through programmable token distribution. Such incentive mechanisms not only help fund participants' contributions but also prevent protocol layer commoditization (system value flowing to non-protocol technology stack layers, such as the client layer). Addressing incentive issues through programmable methods helps consolidate the decentralized economy of the entire system.
These tools collectively provide greater flexibility, accountability, and sustainability than foundations while allowing DAOs and networks to retain true sovereignty.
Implementation Path: DUNAs and BORGs
Two emerging solutions (DUNA and BORGs) offer simplified paths to implementing these solutions while eliminating the cumbersome and opaque foundation structures.
Decentralized Unincorporated Nonprofit Association (DUNA)
DUNA grants legal personality to DAOs, enabling them to sign contracts, hold property, and exercise legal rights, functions traditionally performed by foundations. However, unlike foundations, DUNA does not require establishing foreign headquarters, setting up discretionary oversight committees, or designing complex tax structures.
DUNA creates a legal capacity without legal hierarchy, purely acting as a neutral executive agent for the DAO. This minimalist structure reduces administrative burden and centralization friction while enhancing legal clarity and decentralization. Additionally, DUNA can provide effective limited liability protection for token holders, an increasingly focused area.
Overall, DUNA provides powerful tools for implementing incentive-compatible mechanisms around network execution, allowing DAOs to sign service contracts with development companies and enforce these rights through token reclamation, performance-based payments, and preventing exploitative actions while maintaining the DAO's ultimate authoritative position.
Cybernetic Organization Tooling (BORGs)
BORGs technology developed for autonomous governance and operations enables DAOs to migrate many "governance convenience functions" currently handled by foundations to the chain, such as funding programs, security committees, and upgrade committees. By moving on-chain, these sub-structures can operate transparently under smart contract rules: setting permission access when necessary, but accountability mechanisms must be hard-coded. Overall, BORGs tools can minimize trust assumptions, enhance accountability protection, and support tax optimization architecture.
DUNA and BORGs together will transfer power from informal off-chain institutions like foundations to more accountable on-chain systems. This is not just an ideological preference, but a regulatory advantage. Proposed market structure legislation requires "functional, administrative, clerical, or departmental actions" to be processed through decentralized, rule-based systems, rather than opaque, centrally controlled entities. By adopting DUNA and BORGs architectures, crypto projects and development companies can meet these standards without compromise.
Conclusion: Farewell to Expedients, Welcome True Decentralization
Foundations have led the crypto industry through difficult regulatory periods and facilitated some incredible technological breakthroughs and unprecedented levels of collaboration. In many cases, foundations filled critical gaps when other governance structures could not function, and many foundations may continue to thrive. However, for most projects, their role is limited, merely 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 genuine governance, genuine incentive alignment, and genuine systematization. Foundations are unable to meet these needs, distorting incentives, hindering scalability, and solidifying centralized power.
The survival of a system does not depend on trusting "good people," but on ensuring that the self-interest of each participant is meaningfully tied to the overall success. This is why corporate structures have endured for hundreds of years. The crypto industry needs similar structures: where public interests coexist with private enterprises, accountability is embedded, and control is minimized by design.
The next era of cryptocurrency will not be built on expedients, but on scalable systems: systems with genuine incentives, genuine accountability mechanisms, and genuine decentralization.
