The cryptocurrency industry faces a significant turning point as prominent venture capital firm a16z crypto has publicly called for an end to centralized crypto foundations. According to Miles Jennings, a16z crypto’s head of policy and general counsel, the current foundation-based governance structures now hinder rather than foster decentralization and growth.
In a detailed critique published online, Jennings argues that existing crypto foundations, once essential instruments for navigating regulatory uncertainty and driving early decentralization, have increasingly become sources of inefficiency and misalignment. He suggests that the foundational model, in essence a non-profit structure originally designed to support and protect fledgling crypto projects, now primarily introduces friction and slows vital innovation.
Jennings highlights the Ethereum Foundation as an illustrative case—even acknowledging its substantial contributions to Ethereum’s growth—yet notes that substantial value and development have arguably come from for-profit organizations, like ConsenSys, building directly on Ethereum’s infrastructure. He challenges readers to consider whether Ethereum would have achieved even more rapid advancement without reliance on traditional foundations and their restrictive non-profit structures.
The central issue as identified by Jennings revolves around accountability. Foundations often operate through token allocations, selling tokens for fiat and deploying that capital without clear measurement of outcomes or results. Jennings refers to this as a patronage model—essentially people spending other people’s money without accountability. This approach offers limited incentives to optimize performance, efficiency, or impact.
Centralized crypto foundations additionally suffer operationally, forced into established bureaucratic procedures and subject to legal complexities. Jennings point outs that establishing these foundations frequently costs hundreds of thousands of dollars in fees and involves prolonged regulatory maneuvering. Such entities often find themselves restricted from pursuing revenue-generating activities—even when such efforts would directly benefit their underlying protocols—due to compliance and regulatory limitations.
A particularly ironic effect emerges when foundations, initially structured to achieve decentralization, increasingly resemble centralized gatekeepers. Some foundations, Jennings notes, control critical treasury keys, operational responsibilities, and upgrade permissions. Due to their operational and decision-making insulation, these entities have progressively detached from direct tokenholder accountability.
Reflecting evolving regulatory understanding and more recent congressional proposals that shift toward a “control-based” framework rather than traditional “effort-based” decentralization, a16z argues crypto protocols should embrace simpler governance alternatives. Jennings suggests companies, with their clearly defined legal structures, preferred equity incentives, and shareholder accountability, naturally produce better alignment between outcomes and incentives. He emphasizes the advantages of typical corporate structures—with efficient use of capital, talent acquisition beyond token-based incentives, and the market discipline that for-profit entities face.
Acknowledging possible objections, Jennings concedes that companies might prioritize their financial interests over broader tokenholder interests. However, he believes that clear rules enforcing transparency and on-chain accountability could effectively mitigate potential abuses. Ultimately, a16z believes the industry’s need for accountability, efficiency, and rapid innovation greatly outweighs these theoretical downsides.
Overall, his proposal reflects shifting industry dynamics, where traditional centralized foundation structures—long promoted as a safeguard mechanism for crypto network decentralization—might be doing more harm than good. The solution Jennings proposes is straightforward: replace foundations with simple, transparent corporate structures operating within a robust and clearly articulated regulatory environment.
