Crypto Foundations Face Scrutiny as Experts Debate Future

Coin WorldMonday, Jun 16, 2025 1:56 pm ET
2min read

In the evolving landscape of cryptocurrency, the necessity of offshore foundations for crypto teams has become a topic of debate. Miles Jennings, the head of policy and general counsel at venture firm a16z, has argued that these foundations, often set up in locations like the Cayman Islands, are no longer essential and should be phased out. Jennings contends that while foundations were initially created to enhance decentralization, their lack of economic incentives and legal constraints have hindered their productivity and financial success. He points out that setting up a foundation can be costly and time-consuming, often requiring significant legal and accounting fees, which can be prohibitive for small startups.

Jennings further argues that the situation has deteriorated to the point where it is increasingly difficult to find attorneys experienced in setting up foreign foundation structures, as many have abandoned their practices due to the high fees involved. He suggests that companies are a better alternative, and that foundations could evolve into other formats such as Decentralized Unincorporated Nonprofit Associations (DUNAs), while developer firms could become Public Benefit Corporations (PBCs).

Other blockchain attorneys, however, hold differing views on the matter. David Otto, managing partner at Marin Davis PLLC, who led the defense in a recently dismissed SEC lawsuit against DragonChain, believes that foundations for token issuances are neither needed nor effective in addressing security concerns. He notes that there is no longer a widespread perception that a foundation is necessary for token issuance, except in specific jurisdictions that offer tax benefits.

Moish Peltz, co-managing partner of Falcon, Rappaport & Berkman’s Digital Assets Group, suggests that while offshore foundations can still play a role in crypto, their rationale is narrowing as US rules catch up. He advises US teams to consider starting US-based UNAs or DUNAs, or setting up an LLC as a for-profit option. Peltz also highlights that the real barrier to going offshore is the tax implications, and that clearer deferral or charitable-like treatment from the IRS for decentralized or public-goods projects could reduce the need for offshore foundations.

Tyler Harttraft, a partner at Bull Blockchain Law, maintains that crypto foundations remain essential for US teams launching tokens. He notes that the tax breaks offered by Cayman Islands foundations have been a significant draw for crypto projects, and this will likely remain the preferred pathway until new US regulations are solidified. Harttraft argues that the current US regulatory landscape offers no clear issuance pathway, and advising a crypto firm to establish a separate non-US foundation remains the only reliable option for legal and tax certainty.

Livepeer, a video streaming- and data storage-focused network, recently launched a foundation in the current climate. Livepeer cofounder and CEO Doug Petkanics explained that the new foundation is designed to be leaner and more focused, better suited to the needs of a mature, multi-entity, decentralized network. He criticized many existing foundations for becoming bloated intermediaries that exist as regulatory workarounds, neither accelerating decentralization nor improving execution.

The current political climate suggests that foundations may not be needed for much longer, marking a significant shift from the status quo of the past decade. While some foundations serve more of a purpose than others, moving towards a leaner model or doing away with the foundation structure entirely could increase competition and aid startup builders in the US looking to bring tokenization to their consumer apps. This evolution could lead to a more efficient and competitive landscape for crypto projects, fostering innovation and growth in the industry.