Foundations were supposed to protect crypto, now VC says they’re doing opposite

As scrutiny mounts over the role of crypto foundations, a16z crypto says it’s time to move on and build with better tools.

Crypto venture giant a16z crypto thinks it’s time to move on from big, centralized crypto foundations and let communities take the lead instead, as they roll out a new framework aimed at helping protocols govern themselves from day one.

In a new blog post, a16z crypto head of policy & general counsel Miles Jennings said it’s “time for the crypto industry to move on” from the non-profit structures that have long underpinned blockchain development. While these foundations once played a key role in navigating unclear regulations and fostering decentralization, the post argues they now “create more friction than decentralization.”

“[…] 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.”

Miles Jennings

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The comments come at a time when governance structures in crypto are under fresh scrutiny, especially those tied to the Ethereum Foundation. While the post doesn’t name it explicitly, it points to the Ethereum Foundation as one of the better examples, noting it has been “a boon to the growth and development” of Ethereum. Still, a16z suggests the overall model is no longer fit for purpose.

“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?”

Miles Jennings

The shift in tone seems to reflect not just internal frustrations from founders but also changing winds in U.S. crypto policy. New congressional proposals are inching away from an “efforts-based” decentralization framework — the one that often led projects to distance themselves from their own networks — toward what Jennings describes as a “control-based maturity framework.”

Crypto.news reached out to the Ethereum Foundation and several others, and we’ll update the article once we hear back.

‘People spending other people’s money’

Under the new approach, a founder could continue working on their network without pretending to disappear from it. That, Jennings writes, reduces the need for what he calls “convoluted workarounds” like offshore foundations.

The post doesn’t sugarcoat it: the foundation model isn’t a smart legal trick anymore. These days, some see it as a pricey, clunky setup that messes with incentives, slows things down, and brings in hidden power plays. Jennings suggests that foundations suffer from weak accountability and poor alignment between incentives and outcomes.

“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.”

Miles Jennings

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The critique hinges largely on how foundations are funded. Since they don’t have shareholders, they often rely on selling pre-allocated tokens for fiat, spending that money with little direct feedback from the market. Without a profit motive or a competitive market mechanism, a16z argues, it becomes hard to measure whether a foundation is succeeding.

“Accountability is built into corporate structures,” Jennings writes, adding that in his view, traditional companies — developer companies, in particular — are better suited to build out protocols and tools. They can hire top talent, allocate capital efficiently, and are bound by market discipline.

That’s a stark contrast to the reality for many foundations. Legal and tax restrictions often prevent them from engaging in for-profit ventures, even when such ventures would clearly benefit the network they’re meant to support. A16z crypto gives the example of consumer-facing applications, which some foundations are barred from running, despite those apps driving traffic, value, and utility to the chain.

And when foundations try to operate anyway, they can end up acting more like centralized gatekeepers than decentralized stewards. The post notes that some now control “treasury keys, critical operational functions, and network-upgrade rights,” while being insulated from the accountability mechanisms tokenholders might expect.

A better, simpler alternative

The Menlo Park-headquartered venture capital firm isn’t holding back on the whole scene around foundation setups either. Getting one going can easily run you half a million bucks or more, plus weeks or months of dealing with lawyers and accountants. Jennings notes it’s gotten so messy that it’s hard to find lawyers who actually know how to set up these foreign foundations anymore.

In short, the system appears to be buckling under its own weight. Not only are foundations hard to justify legally, but they’re also increasingly viewed as a poor fit economically, and operationally, they may be harming the very teams they’re meant to support.

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Many founders are said to be forced into splitting up their core teams just to satisfy the appearance of separation between foundation and company staff. That leads to awkward questions, according to a16z crypto “Can foundation employees be in the same Slack channel as company employees? Can the organizations share a roadmap?”

In the firm’s view, these are distractions that bog down progress. The alternative? Plain old companies.

“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.”

Miles Jennings

Jennings isn’t saying companies have it all figured out. The post admits there are worries that corporate setups might build networks to benefit themselves more than tokenholders.

Yet, it argues these issues are easier to spot and fix with new regulations, especially if the rules favor transparent, on-chain systems and push back against offchain, centralized control.

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