The End of the Encryption Foundation: Restructuring Blockchain Project Architecture

The encryption foundation was once an important force in promoting the development of the blockchain industry. However, over time, they have become a major obstacle to the progress of the industry. In the process of decentralization, the problems brought by the encryption foundation far outweigh its contributions.

With the introduction of a new regulatory framework by the U.S. Congress, the encryption industry has welcomed a rare opportunity: to abandon the encryption foundation model and its derivative issues, and to rebuild the ecosystem with a clearer and more scalable mechanism.

This article will analyze the origins and flaws of the encryption foundation model and argue how conventional development companies can replace the encryption foundation structure to adapt to the emerging regulatory framework. The article will elaborate on the advantages of corporate systems in capital allocation, talent attraction, and market response - only in this way can true synergy, scalability, and impact be achieved.

An industry dedicated to challenging tech giants, financial behemoths, and government systems cannot rely solely on altruism, charitable funding, or vague missions. Economies of scale come from incentive mechanisms. If the cryptocurrency industry is to fulfill its promises, it must break free from structural limitations that are no longer applicable.

The Historical Mission and Limitations of the Encryption Foundation

The reason why the encryption industry initially chose the model of encryption foundations lies in the early founders' idealism of decentralization: non-profit encryption foundations aim to act as neutral managers of network resources, avoiding interference from commercial interests by holding tokens and supporting ecosystem development. Theoretically, this model can maximize credible neutrality and long-term public value. Objectively speaking, not all encryption foundations have failed; for example, a certain encryption foundation has promoted network development under its support, and its members have completed highly valuable pioneering work under strict restrictions.

However, as time goes by, the intensifying regulatory dynamics and market competition have led the encryption foundation model to deviate from its original intention:

1. The behavioral testing dilemmas of a certain regulatory agency. "Decentralized testing based on development behavior" complicates the situation - forcing founders to abandon, obscure, or evade participation in their own network.
2. Shortcut thinking under competitive pressure. The project party views the encryption foundation as a decentralized shortcut tool.
3. Regulatory evasion channels. The encryption foundation has become an "independent entity" that transfers responsibilities, essentially becoming a circumvention strategy to evade securities regulation.

Although this arrangement has rationality during legal confrontations, its structural defects can no longer be ignored:

1. Lack of Incentive Coordination: Absence of a coherent interest coordination mechanism
2. Growth optimization incapacity: structurally unable to achieve scale expansion optimization
3. Control Consolidation: Ultimately forming a new type of centralized control

As the congressional proposal advances a mature framework based on control, the illusion of separation of the encryption foundation is no longer necessary. This framework encourages founders to transfer control without having to give up involvement in construction, while providing clearer decentralized construction standards that are less prone to abuse than behavioral testing frameworks.

When this pressure is relieved, the industry can finally abandon temporary measures and shift towards a long-term sustainable framework. The encryption foundation has fulfilled its historical mission, but it is not the best tool for the next stage.

Blockchain Foundation Incentivizing Synergy Myth

Supporters claim that the encryption foundation can better coordinate the interests of token holders, as it is free from shareholder interference and focuses on maximizing network value.

However, this theory ignores the actual operational logic of organizations: eliminating equity incentives for enterprises does not solve the problem of misalignment of interests, but rather institutionalizes it. The lack of profit motivation leads to the absence of a clear feedback mechanism, direct accountability, and market constraints for encryption foundations. The funding of encryption foundations is essentially a sheltering model: after tokens are allocated and converted into fiat currency, there is no clear linkage mechanism between expenditures and outcomes.

When others' funds are managed in a low-accountability environment, efficiency optimization is nearly impossible.

The corporate structure then has an internal accountability mechanism: the company is constrained by market laws. To allocate capital for profit, financial indicators such as ( revenue, profit margin, and return on investment ) objectively measure effectiveness. When management fails to meet targets, shareholders can assess and apply pressure.

In contrast, cryptocurrency foundations are often set up to operate at perpetual losses with no consequences. Due to the open and permissionless nature of blockchain networks and often unclear economic models, mapping the efforts and expenditures of cryptocurrency foundations to value capture is nearly impossible. As a result, cryptocurrency foundations are isolated from the market realities that require hard decision-making.

The long-term collaboration of employees in encryption funds with the network is more challenging: their incentives are weaker than those of corporate employees because their compensation is only a combination of tokens and cash ( derived from the sale of tokens by the encryption foundation ), rather than the tokens + cash ( derived from equity financing ) + equity combinations enjoyed by corporate employees. This means that employees in encryption funds are subject to extreme fluctuations in token prices, which only provide short-term incentives; whereas corporate employees enjoy stable long-term incentives. Bridging this gap is fraught with difficulties. Successful companies continuously enhance employee benefits through growth, but successful encryption foundations cannot do this. This leads to difficulties in maintaining collaboration, and employees in encryption funds are easily tempted to seek external opportunities, breeding potential conflicts of interest.

The Legal and Economic Constraints of Encryption Foundations

The encryption foundation not only faces incentive distortions but also legal and economic constraints.

Most cryptocurrency foundations are legally prohibited from developing peripheral products or engaging in commercial activities, even if such initiatives could significantly benefit the network. For example, the vast majority of cryptocurrency foundations are banned from operating consumer-facing profit-making businesses, even if such businesses could generate considerable transaction traffic for the network, thereby bringing value to token holders.

The economic realities faced by the encryption foundation also distort strategic decision-making: it bears all the costs of efforts, while the benefits (, if any, are socially dispersed. This distortion, combined with the absence of market feedback, leads to inefficient resource allocation, whether it is employee compensation, long-term high-risk projects, or short-term superficially beneficial projects.

This is not the way to success. A prosperous network relies on a diversified product service ecosystem including middleware, compliance services, developer tools, etc. under market constraints, and companies are better at providing such supply. Even if a certain encryption foundation achieves remarkable success, without the product services constructed by profit-oriented enterprises, how could a certain blockchain ecosystem have today's prosperity?

The space for value creation by the encryption foundation may be further compressed. The proposed market structure bill ) is reasonable ( and focuses on the economic independence of relatively centralized organizations of tokens, requiring that value must originate from the programmatic functions of the network ), such as a certain token capturing value through a certain mechanism (. This means that neither enterprises nor the encryption foundation can support token value through off-chain profit-making businesses, such as a certain exchange using exchange profits to repurchase and destroy a certain token to raise its price. Such centralized value anchoring mechanisms lead to trust dependence ), which is precisely a hallmark of securities: the collapse of a certain exchange leads to the price crash of a certain token (, thus the ban is justified; but at the same time, it also cuts off the potential path based on market accountability ), that is, achieving value constraints through off-chain business revenue (.

Encryption Foundation Causes Operational Inefficiency

In addition to legal and economic constraints, the crypto foundation also causes significant operational efficiency loss. Any founder who has experienced the structure of a crypto foundation understands the cost: to meet the formal separation requirements that often have a performative nature, they have to dismantle efficient collaborative teams. Engineers focused on protocol development should collaborate daily with business development and marketing teams. However, under the structure of the crypto foundation, these functions are forced to become disconnected.

When responding to such architectural challenges, entrepreneurs often fall into an absurd dilemma:

• Can employees of the encryption fund coexist in the same communication channel as company employees?
• Can two organizations share a development roadmap?
• Can employees participate in the same offline meeting?

In fact, these issues are unrelated to the essence of decentralization, but they bring real losses: artificial barriers between functional dependencies delay development progress, hinder collaborative efficiency, and ultimately lead to all participants suffering from product quality degradation.

The Encryption Foundation Has Become a Centralized Gatekeeper

The actual functions of the encryption foundation have severely deviated from its initial positioning. Countless cases show that the encryption foundation is no longer focused on decentralized development but has instead been endowed with increasingly expanding control - evolving into a centralized entity that controls the treasury keys, key operational functions, and network upgrade permissions. In most cases, the encryption foundation lacks substantial accountability to token holders; even if token governance can replace the board of directors of the encryption foundation, it merely replicates the agency problem of corporate boards, and the tools for recourse are even scarcer.

The problem lies in that most encryption foundations require more than $500,000 to set up and take months, accompanied by lengthy processes with teams of lawyers and accountants. This not only hinders innovation but also creates cost barriers for startups. The situation has worsened to the point where it is increasingly difficult to find experienced lawyers to set up foreign encryption foundation structures, as many lawyers have given up their practice - they now serve only as professional board members and charge fees in dozens of cryptocurrency encryption foundations.

In summary, many projects have fallen into the "shadow governance" of established interest groups: tokens only symbolize nominal ownership of the network, while the actual helm is held by encryption foundations and their hired directors. This structure increasingly conflicts with the legislative structure of emerging markets, where the bill encourages on-chain accountability systems ) to eliminate control (, rather than simply dispersing control through opaque off-chain structures ). For consumers, eliminating dependence on trust is far superior to hiding dependency (. Mandatory disclosure obligations will also enhance the transparency of current governance, forcing project parties to eliminate control rather than delegate it to a few individuals with unclear responsibilities.

Better Solution: Corporate Structure

In a scenario where founders do not need to give up or hide their ongoing contributions to the network, and simply ensure that no one controls the network, the encryption foundation will lose its necessity for existence. This opens the way for a better architecture - one that can support long-term development, coordinate incentives for all participants, while also meeting legal requirements.

Under this new paradigm, conventional development companies ), which build networks from concept to reality, ( provide a better carrier for the continuous construction and maintenance of networks. Unlike encryption foundations, companies can:

• Efficient Capital Configuration
• Attract top talent by offering incentives beyond tokens.
• Responding to market forces through a feedback loop of work.

The company's structure inherently aligns with growth and substantive impact, without relying on charitable funding or vague missions.

However, concerns about the company's alignment with incentives are not unfounded: when the company continues to operate, the potential for network value appreciation to benefit both tokens and equity does indeed create real complexities. Token holders reasonably worry that certain companies may design network upgrade plans or retain specific privileges and permissions to prioritize their equity over token value benefits.

The proposed market structure legislation addresses these concerns through its decentralized legal construction and control mechanisms. However, ensuring incentive alignment will still be necessary—especially when the initial token incentives are depleted due to the project's long-term operation. Concerns about incentive alignment arising from the lack of formal obligations between companies and token holders will also persist: the legislation neither creates nor allows for a legal fiduciary duty to token holders, nor does it grant token holders enforceable rights regarding the company's ongoing efforts.

However, such concerns can be alleviated and do not constitute a legitimate reason for continuing the model of encryption foundations. These concerns also do not require tokens to be injected with equity attributes - that is, a legal claim to the developers' continued efforts - otherwise, it would undermine the regulatory foundation that distinguishes them from ordinary securities. On the contrary, these concerns highlight the need for tools: it is necessary to continuously coordinate incentives through contractual and programmatic means, without compromising execution efficiency and substantive impact.

New Applications of Existing Tools in the Encryption Field

The good news is that incentive collaboration tools already exist. The only reason they have not been popularized in the encryption industry is that using these tools under certain regulatory agency behavioral testing frameworks will trigger more stringent scrutiny.

However, based on the control framework proposed by the market structure legislation, the effectiveness of the following mature tools will be fully unleashed:

) Public Welfare Company ( PBC ) Architecture

Development companies can register or transform into public benefit corporations ( PBC ), which embed a dual mission: to profit while pursuing specific public interests - in this case, supporting the development and health of the network. PBC grants founders legal flexibility to prioritize the development of the network, even if it may not maximize short-term shareholder value.

( Network Revenue Sharing Mechanism

The network and decentralized autonomous organization ) DAO ### can create a sustainable incentive structure for enterprises through shared network profits.

For example: A network with inflationary token supply can allocate part of the tokens to enterprises.