The crypto industry has reached an inflection point. According to leading voices like a16z, crypto projects must now move beyond temporary legal structures and embrace true decentralization. The foundation model, once a pragmatic solution for supporting blockchain networks, has become more of a hindrance than a help.
Foundations were initially designed as non-profit entities to foster neutrality, manage network resources, and support ecosystem growth without direct commercial interests. While some, like the Ethereum Foundation, have contributed significantly to their ecosystems, the model itself is increasingly misaligned with the needs of modern crypto projects.
With new regulatory frameworks emerging from the U.S. Congress, the industry has a unique opportunity to transition toward more efficient, scalable, and incentive-compatible structures. These new frameworks prioritize relinquishing control rather than obscuring participation—making foundations legally redundant and operationally inefficient.
This article explores why the foundation model is failing, how development companies offer a better alternative, and what tools and structures can help crypto projects achieve sustainable growth and meaningful decentralization.
The Historical Role of Crypto Foundations
Why did the crypto industry initially adopt the foundation model?
In the early days, many founders genuinely believed that non-profit foundations would help promote decentralization. These entities were intended to serve as neutral stewards of network resources—holding tokens, funding development, and supporting public goods without the pressure of turning a profit.
Theoretically, foundations were ideal for maintaining credible neutrality and long-term public interest. It’s important to acknowledge that not all foundations have underperformed. The Ethereum Foundation, for example, has played a vital role in Ethereum’s development, often under challenging conditions.
However, increased regulatory scrutiny and market competition slowly distorted the foundation’s original purpose. The SEC’s “efforts-based” decentralization test encouraged founders to distance themselves—or hide their involvement—from the networks they built. In response, many projects began using foundations as a shortcut to decentralization, transferring control and ongoing development to “independent” entities to avoid securities regulation.
While understandable in a hostile regulatory climate, this workaround created more problems than it solved. Foundations often lack coherent incentives, are ill-equipped to drive growth, and can inadvertently centralize control.
The proposed “control-based” maturity framework now being discussed in Congress offers a clearer path. It encourages founders to relinquish control without forcing them to abandon their projects. This shift allows the industry to move beyond legal workarounds and adopt structures better suited for long-term sustainability.
The Flawed Incentive Structure of Foundations
Proponents argue that foundations align better with tokenholders’ interests since they have no shareholders and can focus solely on maximizing network value.
In practice, this is rarely the case. Removing equity-based incentives doesn’t eliminate misalignment—it often institutionalizes it. Without a profit motive, foundations operate without clear feedback loops, direct accountability, or market discipline.
Foundations typically rely on a sponsorship model: selling tokens for fiat and spending those funds with no direct link between expenditure and outcomes. Spending other people’s money without accountability rarely leads to optimal results.
Companies, by contrast, are constrained by market discipline. They spend capital in pursuit of profit, and financial results serve as objective measures of success. Shareholders can evaluate performance and exert pressure when goals aren’t met.
Foundations, however, often operate at a perpetual loss without consequences. In open, permissionless blockchain networks—where clear economic models are often lacking—it’s nearly impossible to tie a foundation’s work to value creation. As a result, many crypto foundations are insulated from real-world market forces.
Aligning foundation team incentives with long-term network success is another challenge. Compensation structures based mostly on tokens and cash (from foundation token sales) are more volatile and short-term than the mix of tokens, cash, and equity offered by companies. This makes it harder to retain talent and avoid conflicts of interest as the network evolves.
Legal and Economic Limitations
Foundations aren’t just hampered by misaligned incentives—they also face significant legal and economic constraints.
Many are legally prohibited from building certain products or engaging in commercial activities, even if those activities would significantly benefit the network. For example, most foundations can’t operate for-profit consumer-facing applications, even if doing so would drive adoption and increase token value.
Economic realities further distort strategic decision-making. Foundations bear the direct cost of their efforts, while the benefits are distributed socially across the network. Without clear market feedback, effectively allocating resources—whether for salaries, R&D, or short-term projects—becomes incredibly difficult.
Successful networks rely on a broad ecosystem of products and services, including middleware, compliance tools, developer infrastructure, and more. Companies, driven by market signals, are simply better equipped to deliver these. Even with the Ethereum Foundation’s contributions, it’s hard to imagine Ethereum thriving without the products and services built by for-profit entities like ConsenSys.
Proposed market structure legislation may further limit foundations’ value-creation opportunities. New laws could require that token value derives from a network’s programmable operation—not from off-chain profitable businesses propping up the token economy. This is a reasonable approach, as off-chain value introduction often reintroduces trust dependencies characteristic of securities.
Operational Inefficiencies
Beyond legal and economic constraints, foundations introduce significant operational inefficiencies. Anyone who has managed a foundation knows the cost of splitting high-performing teams to satisfy formal separation requirements.
Engineers focused on protocol development often need to collaborate daily with business development, marketing, and partnerships teams. In a foundation structure, these functions are siloed, creating artificial barriers that slow development, hinder coordination, and reduce output quality.
Founders often find themselves tangled in absurd questions: Can foundation employees use the same Slack channels as company employees? Can both groups share a roadmap? Attend the same off-site? These questions have little bearing on decentralization—but they impose very real costs.
The Rise of Centralized Gatekeepers
In many cases, crypto foundations have strayed far from their original mission. Rather than supporting decentralized development, they’ve often become centralized gatekeepers—controlling treasury assets, critical operational functions, and network upgrade permissions.
Worse, many foundation members operate without accountability. Even when tokenholder governance replaces foundation directors, it often replicates the principal-agent problems seen in corporate boards.
Setting up a foundation has also become prohibitively expensive and time-consuming. Many projects spend over $500,000 and months working with lawyers and accountants—slowing innovation and diverting resources from building. The situation has become so dysfunctional that it’s now difficult to find lawyers experienced in establishing foreign foundations, as many have shifted to earning fees as board members of multiple crypto foundations.
What emerges is a system of “shadow governance” where vested interests hold real power. Tokens may nominally represent network ownership, but foundations and their appointees are often at the helm. This conflicts directly with proposed market structure legislation, which rewards on-chain, accountable, control-eliminating systems—not opaque off-chain structures.
A Better Alternative: The Development Company
If founders no longer need to abandon or conceal their ongoing work—only to ensure no single entity controls the network—foundations become unnecessary. This opens the door to better structures that support long-term growth, align incentives, and satisfy legal requirements.
In this new context, ordinary development companies offer a far better vehicle for ongoing building and maintenance. Unlike foundations, companies excel at allocating capital efficiently, attracting top talent with stronger incentives, and responding to market signals. They are structurally aligned with growth and impact—not dependent on charitable funding or vague mandates.
Concerns about companies and their incentives are not unfounded. The dual value capture of tokens and equity introduces complexity. Tokenholders may worry that a company could prioritize equity value over token value—designing network upgrades or retaining privileges that benefit shareholders.
Proposed market structure legislation addresses some of these concerns through its legal construction of decentralization and control. But ensuring incentive alignment remains critical, especially as projects mature and initial token incentives diminish. Tools exist to achieve this alignment without resorting to foundations or equating tokens with equity.
New Uses for Existing Tools
Several well-established tools can help align the interests of development companies and tokenholders:
Public Benefit Corporations (PBCs)
Development companies can register as PBCs—entities with a dual mission: pursuing profit while supporting a specific public benefit, such as the development and health of a network. This structure gives founders legal flexibility to prioritize network growth, even when it doesn’t maximize short-term shareholder value.
Network Revenue Sharing
Networks and DAOs can create ongoing incentive structures for companies through revenue-sharing mechanisms. For example, a network with an inflationary token supply could allocate a portion of newly minted tokens to the company, combined with revenue-based buybacks to calibrate overall supply. Well-designed revenue sharing can direct most value to tokenholders while creating a direct, lasting link between company success and network health.
Milestone-Based Token Vesting
Token lockups for employees and investors should be tied to meaningful network maturity milestones—such as usage thresholds, successful upgrades, or decentralization metrics. Proposed market structure legislation includes similar mechanisms: restricting insiders from selling tokens on secondary markets until the token achieves economic independence. These structures ensure early investors and team members remain motivated to keep building.
Contractual Protections
DAOs can negotiate contracts with companies to prevent actions that harm tokenholders. These may include non-compete clauses, open-access IP licenses, transparency obligations, and clawback provisions for misbehavior.
Programmable Incentives
When network participants are rewarded programmatically for their contributions via token allocations, tokenholders are better protected. These mechanisms help fund ecosystem contributions while preventing value from shifting away from the protocol layer. Programmatic incentives also reinforce the network’s decentralized economic foundation.
Together, these tools offer more flexibility, accountability, and sustainability than foundations—all while allowing DAOs and networks to retain sovereignty.
Implementation Paths: DUNAs and BORGs
Two emerging solutions simplify the implementation of these tools while avoiding the complexity and opacity of foundation structures:
Decentralized Unincorporated Nonprofit Associations (DUNAs)
DUNAs provide DAOs with legal personhood—enabling them to contract, hold property, and exercise rights traditionally handled by foundations. Unlike foundations, DUNAs don’t require foreign headquarters, discretionary oversight boards, or complex tax structures.
DUNAs create legal capacity without legal hierarchy, acting purely as neutral execution agents for DAOs. This minimalism reduces administrative overhead and centralized friction while enhancing legal clarity and decentralization. DUNAs can also provide limited liability protection for tokenholders—an increasingly important concern.
Overall, DUNAs are powerful tools for executing incentive-compatible mechanisms around networks. They allow DAOs to enter service agreements with development companies and enforce rights—through token clawbacks, performance-based payments, and anti-exploitation measures—while retaining final authority.
Cybernetic Organization Tooling (BORGs)
BORGs are technologies developed for autonomous governance and operations. They enable DAOs to migrate many “governance facilitation functions” currently handled by foundations—such as grant programs, security councils, and upgrade committees—on-chain.
Through smart contract rules, these substructures can operate transparently: with permissioned access when necessary, but with hard-coded accountability. BORGs minimize trust assumptions, enhance liability protection, and support tax-optimized structures.
Together, DUNAs and BORGs shift power from informal off-chain entities like foundations to more accountable on-chain systems. This isn’t just an ideological preference—it’s a regulatory advantage. Proposed market structure legislation requires that “functional, administrative, clerical, or departmental actions” be handled through decentralized, rules-based systems—not opaque, centrally controlled entities. By adopting DUNA and BORGs architectures, crypto projects and development companies can meet these standards without compromise.
Frequently Asked Questions
What is a crypto foundation?
A crypto foundation is a non-profit entity designed to support a blockchain network’s development, manage its resources, and promote decentralization. Initially seen as a neutral steward, many foundations have become inefficient or overly centralized over time.
Why are foundations becoming problematic?
Foundations often lack aligned incentives, face legal restrictions, and create operational inefficiencies. They can also become centralized gatekeepers, controlling treasuries and network upgrades without sufficient accountability.
What replaces foundations in crypto?
Development companies—combined with tools like Public Benefit Corporation status, revenue-sharing agreements, and milestone-based vesting—can better align incentives, improve accountability, and drive growth. On-chain structures like DUNAs and BORGs provide legal and operational support.
How do development companies align with tokenholder interests?
Through contractual mechanisms like revenue sharing, transparent roadmap commitments, and token vesting tied to network milestones. Companies can also adopt legal structures that prioritize network health alongside profit.
What are DUNAs?
Decentralized Unincorporated Nonprofit Associations (DUNAs) give DAOs legal personhood without complex incorporation. They enable contracting, asset holding, and limited liability protection while preserving decentralization.
How do BORGs work?
Cybernetic Organization Tooling (BORGs) migrates governance functions—like grants committees or upgrade mechanisms—on-chain. This increases transparency, reduces trust assumptions, and ensures accountability through programmable rules.
Conclusion: Beyond Temporary Solutions
Foundations helped the crypto industry navigate a period of regulatory uncertainty. They supported incredible technical breakthroughs and unprecedented levels of collaboration. In many cases, they filled critical gaps when no other governance structures were available.
But that era is ending.
New policies, changing incentive structures, and industry maturity all point in one direction: toward real governance, real incentive alignment, and real systematization. Foundations cannot meet these needs. They distort incentives, hinder scalability, and entrench centralized power.
Enduring systems don’t rely on trusting “good people”—they ensure every participant’s self-interest is meaningfully tied to the collective success. That’s why corporate structures have endured for centuries. The crypto industry needs similar structures: where public benefit and private enterprise coexist, accountability is embedded, and control is minimized by design.
The next era of crypto won’t be built on workarounds. It will be built on scalable systems with real incentives, real accountability, and 👉 explore more strategies for decentralized growth.