Although foundations should have protected crypto from VC, they are now saying that the reverse is happening.

A16z Crypto says that as the scrutiny over crypto foundations grows, it is time to upgrade and use better tools.

Crypto venture giant a16z Crypto thinks that it is time to let go of big centralized cryptofoundations and instead allow communities to take the initiative. They are rolling out a framework designed for protocols themselves, from day one.

It is not a new blog post, a16z crypto head of policy & general counsel Miles Jennings said it’s “time for the crypto industry to move on” Non-profits have been the backbone of blockchain technology for many years. The post claims that while these foundations played an important role once in clarifying unclear regulations and encouraging decentralization, they no longer play this key role. “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

Commentary comes at a period when crypto governance is being re-examined. especially those tied To the Ethereum Foundation. The Ethereum Foundation is cited as an example, even though it’s not named explicitly. “a boon to the growth and development” Ethereum. A16z still suggests that the model as a whole is not 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

This shift is not only a reflection of the frustrations among founders, but also reflects a change in U.S. policy on crypto. The new congressional proposals seem to be moving away from the original proposal. “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 contacted the Ethereum foundation and other parties, and will update the article when we hear from them.

‘People spending other people’s money’

According to the new model, founders could work on their networks without pretending they were gone. Jennings writes that this reduces the necessity for what he refers to as “convoluted workarounds” Like offshore foundations.

This post isn’t trying to sugarcoat the truth: The foundation model doesn’t work anymore. Some see it today as an obtrusive, expensive setup that slows everything down and creates hidden power games. Jennings suggests foundations are harmed by weak accountability, and a lack of alignment between incentives.

“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

It is the funding of foundations that has been the focus of much criticism. Because they do not have shareholders, many rely on pre-allocated tokens being sold for fiat. The money is then spent without any direct feedback. Without a profit-motive or competitive market mechanisms, says a16z, it’s hard to tell if a foundation succeeds.

“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. These companies are able to hire the best talent, invest capital in a cost-effective manner, and adhere to strict market rules.

This is a far cry from the reality of many foundations. Tax and legal restrictions Often, they are prohibited from participating in profitable ventures even though such ventures clearly would benefit the network that is meant to be supported. A16z Crypto gives an example where some foundations prohibit consumer-facing software, yet these apps drive value and traffic to the chain.

When foundations operate in any way, they may end up more acting like gatekeepers rather than decentralized trustees. Post notes that certain now control “treasury keys, critical operational functions, and network-upgrade rights,” While being shielded from accountability mechanisms that token holders might expect.

A better, simpler alternative

Menlo Park based venture capitalists aren’t hesitant to discuss the entire scene surrounding foundation setups. It can cost you up to half-a-million dollars or even more. This is not counting the time and money spent on lawyers and accountants. Jennings says that the situation has gotten to be so complicated, it is difficult to find attorneys who know how to create these foundations.

Shortly, it appears that the system has buckled under its weight. In addition to being difficult to defend legally, foundations are also considered to be an unsuitable fit in terms of economics, and they could even hurt the teams they support.

According to reports, many founders have been forced to split up their core team to give the impression of separation between company and foundation staff. This leads to uncomfortable questions according to A16z cryptocurrency “Can foundation employees be in the same Slack channel as company employees? Can the organizations share a roadmap?”

According to the firm, this is a distraction that slows down progress. What is the alternative? The alternative?

“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 does not claim that corporations have everything figured out. Post admits that there is concern about corporate networks being built to serve them more than token holders.

It argues that these problems are more easily spotted and fixed with new regulation, particularly if rules favour transparent on-chain system and reject centralized, off-chain control.