In the Web3 world, the foundation is a concept that is often mentioned but not deeply understood. As the core pillar of the project, the foundation not only determines the technical direction, but is also the core of promoting community development and ecological construction. However, for most Web3 project startup teams, "Why do we need to establish a foundation?" is always an unavoidable question.
Previously, in his book " Web3 Lawyers: Understanding the Ethereum Foundation's 2024 Report and Meeting the Compliance Challenges of the Trump Era ", Mankiw elaborated on the important role of crypto foundations in US legal compliance by combining US regulatory trends. As the industry gradually matures and the global regulatory environment continues to improve, the role of crypto foundations in Web3 projects is extending from technical support and governance to compliance and ecological protection.
In this article, based on the essential significance of the foundation, Attorney Mankiw will analyze how the Web3 project can achieve compliant operations and promote community development through crypto foundations, and ensure the success of the project in the context of global supervision.
Governance limitations of Web3 projects
The uniqueness of Web3 lies in its decentralized concept, which gives the project a broad imagination space, but also brings governance complexity. Compared with traditional enterprises that rely on clear distribution of rights and responsibilities and stable management structure, the governance of Web3 projects needs to find a balance between technology research and development, community autonomy and ecological construction, and also face the game between multiple stakeholders.
In many Web3 startups, the independence of governance structures is often a difficult challenge to overcome. In the early stages of a project, the management model that relies on the core team can quickly advance development progress, but it is also prone to the dilemma of "centralized" governance. For example, when team members change, the legal responsibilities and operational direction of the project may face significant risks due to the lack of an independent governance body. In addition, this model may also limit community participation due to the high concentration of decision-making power, resulting in the inability to truly realize the concept of decentralization.
Conflict of interest is also a common problem in individual or team management models. When team members are also the main holders of project tokens, their decisions may be more inclined to pursue short-term interests and ignore the long-term development goals of the project. Such behavior will not only undermine the trust of the community, but may also cause irreversible damage to the project's ecosystem.
Crypto foundations were created to address these governance issues.
Core functions of crypto foundations
How can the Crypto Foundation solve the above problems of Web3 projects? This requires understanding what services the Crypto Foundation can provide for Web3 projects.
In the Web3 ecosystem, the Foundation is not only a project management agency, but also a key pillar to ensure its decentralization, sustainability and compliance. From governance to fund management to ecosystem construction, every function of the Foundation is closely centered around promoting the long-term development of the project and the interests of the community. The following are the core functions of the Foundation in the Web3 project:
1. Decentralized governance
Decentralization is the soul of Web3, and the foundation is the hub for realizing this concept. Through the foundation's governance framework, the project can break away from the control of a single interest group and give more decision-making power to the community. Usually, crypto foundations will set up multiple teams to solve different problems. For example, the event group is responsible for planning and organizing external activities, the development group is responsible for technological innovation and product upgrades, and the community group is responsible for operating the global community.
In addition, crypto foundations generally promote the formation of community consensus through on-chain voting or proposal mechanisms. For example, the Ethereum Foundation has long adopted the EIP (Ethereum Improvement Proposal) process to allow developers and the community to jointly participate in the formulation of technical directions. Such a mechanism not only enhances the sense of community participation, but also avoids the trust crisis caused by opaque governance.
At the same time, the foundation also bears the responsibility of resource allocation. For example, it will reasonably divide various resources such as development incentives, ecological expansion funds, and community rewards to ensure the balance of interests of all parties. This open and transparent allocation mechanism not only improves the efficiency of resource use, but also further consolidates the community's trust in the project.
2. Sound fund management
Web3 projects have various sources of funding, from token financing to ecological cooperation. All types of funds need to be professionally managed to maximize their value. Crypto Foundation plays the role of "financial steward" in this process.
First, crypto foundations will allocate resources to key areas such as R&D, marketing, and community building based on the overall planning of the project. For example, the Polkadot Foundation has set up a special fund to support the development of cross-chain protocols; the Ethereum Foundation allocated 25.7% of its funds to L1 development in 2023 and 11% to ZK technology.
Secondly, in order to cope with the high volatility of the Web3 market, crypto foundations usually set aside a portion of funds as reserves to cope with the risks brought about by market changes . This strategy not only improves the project's risk resistance, but also provides greater security for community members and investors.
More importantly, crypto foundations usually disclose their financial status and funding expenditures to the ecosystem on a six-month or one-year basis, ensuring maximum transparency and increasing trust in the overall ecosystem.
3. Promote ecological construction
The success of Web3 projects is inseparable from a strong ecosystem, and the Crypto Foundation is the core promoter of ecological construction. Through financial support, technical guidance and event organization, the Crypto Foundation connects developers, users and partners to jointly build a prosperous project ecosystem.
Take the Solana Foundation as an example. It helps developers in the ecosystem build more secure and feature-rich projects by providing technical resources and funding. The foundation's support is not only reflected in the allocation of funds, but also includes providing developers with technical tools, multi-signature wallets and other infrastructure services. This precise support for developers enables the rapid implementation of technological innovation within the ecosystem, while improving the user experience within the ecosystem.
Another typical case is the NEAR Foundation. Through strategic funding allocation and community activity support, the foundation not only attracts partners around the world, but also provides developers with open technology stack support. For example, the NEAR Foundation has promoted the introduction of AI technology and expanded the application scenarios for the ecosystem. These innovative promotion methods not only enhance the technical strength of the ecosystem, but also attract more attention from developers and users.
In addition, the Foundation also organizes hackathons, developer conferences and other activities. For example, Ethereum holds Devcon in different regions around the world every year to attract technical talents and Web3 projects to join the ecological construction. These activities not only inject new technical capabilities into the projects, but also provide users with opportunities to directly contact the projects, enhancing the trust between the two parties.
Compliance barriers for Web3 projects
In an increasingly complex global regulatory environment, the legal and compliance issues faced by Web3 projects are becoming increasingly severe. From intellectual property protection to the legality of cross-border transactions, every link may become a potential risk point in the development of the project. In this context, the Crypto Foundation, with its independent legal identity and systematic legal support, provides an important compliance barrier for the project.
The most prominent compliance advantage of the Foundation lies in its independent legal person status . The existence of this status effectively isolates legal responsibilities and ensures that the interests of team members and community participants are not directly threatened by external litigation or regulatory risks. For example, when a project is sued by a third party due to intellectual property issues, the Foundation can participate in the lawsuit as an independent entity, concentrating the risk at the organizational level rather than dispersing it to the core development team or community members. This responsibility isolation mechanism not only reduces the legal burden of project operators, but also allows participants to participate in project construction with greater confidence.
The legal structure design of the foundation is another core advantage. Currently, Singapore, Switzerland and Hong Kong have become popular registration places for crypto foundations. The choice of these regions is not accidental, because these jurisdictions provide crypto-friendly regulatory policies and space for tax optimization. For example, Singapore, with its clear legal framework and trust structure, helps the foundation save about 30% of operating costs in tax optimization; Switzerland's "Crypto Valley" enjoys a world-renowned crypto asset support policy, providing a broad stage for the foundation's technology research and development and ecological expansion; and Hong Kong, through its latest virtual asset regulatory policy, has created compliance convenience for the foundation's operations in Asia. The legal environment in these regions not only ensures the legitimacy of the foundation, but also helps the project achieve more efficient resource management by optimizing tax and capital flow costs.
Intellectual property protection is also one of the core tasks of the Foundation . In Web3 projects, code, trademarks, and brands are key resources for building competitiveness. Through centralized management, the Foundation can effectively protect the project's technical achievements from being abused. For example, the Ethereum Foundation has registered its trademark "Ethereum" worldwide, preventing other institutions from using it maliciously. This centralized management model not only protects project assets, but also lays a solid foundation for the global promotion of the brand.
In addition, the Foundation plays an important role in cross-border investment and transactions . The global nature of Web3 projects has made cross-border capital flows and international cooperation a normal practice, but the regulatory policies of various countries on virtual assets vary greatly. The Foundation works with professional legal experts to ensure that every transaction and cooperation complies with local laws. For example, in the United States, the Foundation team helps projects ensure that token issuance complies with the provisions of the Securities Act through due diligence; in the European Union, the Foundation assists projects in complying with the requirements of the General Data Protection Regulation (GDPR) to ensure that the processing of user data complies with legal standards.
Finally, the foundation further reduces compliance risks through a highly transparent operating model . The foundation usually implements strict anti-money laundering (AML) and know your customer (KYC) policies to ensure the legitimacy of the source and use of funds, while enhancing community trust through regular financial audits and reports. Transparency not only helps projects reduce legal risks, but also strengthens the credibility of projects in the market.
Attorney Mankiw's Summary
The success of Web3 projects not only relies on technological innovation, but also requires a strong governance structure and compliance assurance . As an independent legal person, the Crypto Foundation not only provides a decentralized governance framework for the project, but also resolves many complex operational problems with its unique legal status. From resource allocation to ecological construction, from intellectual property protection to legal risk isolation, the Foundation plays an indispensable role in promoting the sustainable development of the project.
Globally, Singapore, Switzerland, the Cayman Islands and other places have long been popular locations for crypto foundations due to their friendly legal environment and efficient policy implementation. As Hong Kong's policies on virtual assets become increasingly open, its strong financial ecology and meticulous regulatory guidance are becoming an important choice for Asian Web3 projects to set up foundations.
Mankiw Law Firm has been deeply involved in the Web3 industry for many years and has rich experience in foundation establishment and compliance services. Whether your project aims to expand globally or focus on local development, Mankiw's legal team can provide a full range of solutions from architecture design, fund management to operational support according to your needs. Choosing Mankiw Law Firm is not only choosing professionalism and stability, but also opening up a smooth road for compliance and development for your project.
