Author: Miles Jennings, a16z crypto policy director and general counsel; Translator: AIMan@黄金财经
In the article "The End of the Cryptocurrency Foundation Era", the call for an end to the offshore outsourcing of cryptocurrencies has sparked some controversy. I want to answer the five most common questions about taxation, public welfare institutions, the future role of foundations, and the limitations of the "pure foundation" model. We will update this FAQ as more questions arise.
1. What about taxes?
Offshore foundations can provide tax benefits, but the risks are greater than many people think (and greater than advisors are willing to admit). In addition, in order to obtain these benefits, US projects must introduce significant operational complexity and structural inefficiencies - such as finding offshore employees and maintaining strict independence between the foundation and the development company (DevCo). Every minute spent managing these restrictions is a minute wasted on shipping.
Or to put it more bluntly: founders should focus on maximizing their chances of success, not the ancillary benefits that only success can bring. Startups don’t fail because they don’t optimize taxes.
In retrospect, most founders I’ve interviewed would gladly forgo the tax benefits they’d gained through offshoring to eliminate the overhead these structures bring. They often cite the primary reason as a harsh regulatory environment, which is slowly easing, and the complexity isn’t worth it. Finding product-market fit is far more important than tax planning.
Also, if structured correctly, DUNAs can be tax efficient, so concerns about taxes shouldn’t be a barrier to onshoring.
2. Aren’t Public Benefit Corporations (PBCs) the same as Foundations?
No. PBCs have fiduciary duties to shareholders, but they are allowed to balance those duties with the public interest. This means they can operate like normal companies — competing, raising money, pursuing profits, and so on — including cases where these businesses provide incidental benefits to the protocol and token holders.
On the other hand, foundations distort incentives and put themselves at a competitive disadvantage. Even where commercial activity is permitted, foundations rarely operate effectively. When they try to operate like companies, they often cause tax, legal, and governance conflicts that they are meant to avoid.
This is particularly problematic for networks that need businesses built on them. These networks require a synchronized effort in marketing, engineering, and marketing to attract third-party business. Nonprofits are simply not suited to do this. And when they are staffed with overseas lawyers, they are simply not competitive.
There is a reason why only a few successful consumer Internet products and services are built and operated by foundations.
3. What role can foundations play in the future?
Absolutely. The point of my post is not to “never have foundations” — it’s that we should stop using them for decentralization shows. It’s a good thing that market structure legislation forces this change. Foundations, especially domestic ones, with specific missions (such as running grant programs and coordinating work across the ecosystem) will continue to have a role. Token holders can provide oversight but cannot directly manage these functions. The Uniswap Foundation and Compound’s new foundation proposal are good examples. Foundations operate independently but are accountable to token holders through funding: if token holders don’t like a foundation’s decision, they can stop funding. Foundations may also be a better place for mature projects to conduct protocol development work, as we have seen with the Ethereum Foundation. Importantly, the control-based framework proposed in market structure legislation not only helps DevCos, but also legitimizes these purpose-driven, narrowly scoped foundations. 4. What about a “foundation-only” model? That is, the DevCo disappears and the foundation builds the ecosystem? Counterintuitively, for early-stage projects, eliminating the DevCo and relying entirely on the foundation to build the ecosystem may actually undermine decentralization. Here’s why.
For a network to achieve and maintain decentralization, third parties (not just insiders) need to participate and build on the network. But third parties won’t participate unless they can derive value from participating. This is already obvious in the context of certain network participants (e.g., validators) — no one wants them to operate at a loss indefinitely. But the same logic applies to application developers, such as those running front ends for DeFi, social media, or messaging protocols.
While foundations can promote credible neutrality, pure foundation models face unique challenges in fostering diverse and durable application layers:
As nonprofits, foundations are not well positioned to assess the conditions necessary to ensure that network participation is profitable for developers. Foundations that operate applications as charitable rather than commercial have little structural incentive to care whether application developers are able to remain profitable. This increases the risk that the protocol itself is not designed to support profitable third-party application development.
When foundations operate applications that lose money and are funded indefinitely by the network, it creates a distorted playing field. Third-party applications are subject to market constraints, while foundation-operated applications are not. This imbalance discourages independent developers (who must eventually make a profit) and inhibits the organic growth of the ecosystem.
In a system where neither developer companies nor foundations operate applications, credible neutrality may be achieved — but it comes at the expense of real-time product learning. If entrepreneurs cannot “dogfood test” their products, they are at a competitive disadvantage in understanding user needs.
For emerging projects, tight feedback loops and market signals are critical to go from 0 to 1. Entrepreneurs need to understand in real time what works and what doesn’t. Indirect or distorted signals jeopardize success.
For mature projects with strong and diverse network participation, credible neutrality will become an effective tool for scaling from 1 to 100. In this case, moving to a foundation-led model is a wise move, despite some inefficiencies. Mature projects with mature market participants and user behaviors are also better equipped to understand the incentives required for participants to operate profitably and maintain a level playing field. Morpho’s reorganization is a great example. But even for mature projects, abandoning a direct profit motive is not without risk.
In addition, projects adopting this strategy should be careful not to convert their tokens into the functional equivalent of foundation shares. Neither existing securities laws nor market structure legislation allow tokens to be used as interests in centralized organizations (including economic interests in off-chain businesses operated by foundations). Network tokens represent ownership of the network, not ownership of a company or foundation.
In short, foundation-led networks have their place, but timing is critical. Deployed too early, they may hinder rather than promote decentralization.
5. Do DUNAs face the same “nonprofit” problem as foundations?
No. DUNAs are “nonprofit associations,” but you shouldn’t confuse them with foundations. DUNAs are, by definition, purpose-driven organizations with a narrow scope—they’re just wrappers around token governance. They’re not hierarchical organizations, don’t have product teams, and don’t run any businesses.
Just as foundations focused on grantmaking avoid the misaligned incentives that occur when nonprofits try to build products, DUNAs avoid this by design. They exist to reflect governance outcomes, not the actions of managers.
Also, “nonprofit” does not mean “tax-exempt.” DUNAs can engage in for-profit activities, including revenue from protocol operations (e.g., decentralized exchange fees, decentralized social media fees, etc.). Wyoming’s DUNA statute explicitly allows for fair compensation for any services provided by the DUNA ecosystem, including to token holders. DUNAs can even be used for token-based governance, for protocols that employ a programmatic buy-and-burn economic model. (For more on DUNA, read this article.)
As a result, DUNAs don’t inherit the structural drawbacks of giant nonprofit foundations — they provide a clear, targeted legal interface for networks that want to stay in-house without compromising decentralization.
In short, if you’re building a network with a network token, then:
If your network needs a grant program, use a foundation.
If your network needs development and products, use a corporation.
If your network needs governance, use DUNA for token governance and the BORG tool to move authority on-chain.
If you’re not building a network, then none of the above applies.
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