Author: Liu Jiao Chain
Recently, Jiao Chain noticed discussions about how, with the new U.S. president opening the doors to a crypto-friendly environment, more blockchain projects that previously used foundations or DAOs as a cover are increasingly leaning towards direct corporate governance structures. Correspondingly, they are fully embracing compliance and pursuing compliant financing and listings.
In fact, back in the booming ICO wave of 2017-2018, why did blockchain projects rush to small countries overseas to set up foundations to issue tokens? The answer is simple and straightforward: the path of corporate financing was not feasible or timely, so some clever individuals devised this "roundabout way" to save the day, calling it "compliance."
However, this "compliance" does not stand up to scrutiny. You see, this compliance is based on the regulations of some distant small country, while the funds come from the "chives" of a certain large country. How can this be considered compliance? In the Netherlands and Canada, marijuana is still legal; try smoking it in Beijing, Shanghai, Guangzhou, or Shenzhen and see what happens.
Nonetheless, digital currencies are not as strictly regulated as drugs. If a project goes overseas, and if the "chives" within the wall stubbornly try to climb over with a ladder, even going so far as to create a fake identity to buy tokens, it can only be said that one party is willing to be taken advantage of.
Later, regulators had no choice but to warn these "chives" that participating in digital currency activities is illegal, and if something goes wrong, they must bear the consequences themselves and not seek regulatory support for their fantasies of so-called justice. No ideology can endlessly accommodate giant infants. Note the term "illegal"; it does not mean "against the law," but rather "not legal," meaning it is not protected by law. Not being protected by law means that if you fall into a pit and lose money, you have to bear it yourself. Don't blame the government for your misfortune.
In fact, the origin of setting up foundations can be traced back to Ethereum. Before the wave of token issuance, in the bull market of 2013, Ethereum emerged and pioneered the ICO model for issuing tokens.
Ethereum's token issuance is different from BTC's pre-mining and fair launch. Ethereum pre-mined a large batch of ETH at zero cost, sold a portion to early investors (which is essentially disguised financing), and reserved a portion for ongoing development funding.
This funding cannot be placed in the hands of an individual, such as Ethereum founder Vitalik Buterin, so it was necessary to establish an entity to represent the project and manage this funding.
To reflect the non-profit nature of this entity, a foundation became a natural choice.
In the overseas open-source software field, establishing a foundation to raise funds to support the development of a certain open-source software is a well-established practice.
Since a foundation is a legal entity, it is centralized.
Unlike the fundraising of open-source software foundations, which is more akin to charitable donations, blockchain project token fundraising has a strong profit motive, or more bluntly, a motive for getting rich quickly.
When you give money to an open-source software foundation, it is a donation, almost like charity, with little to no direct financial return. The only thing you might receive is honor.
However, if you "donate" to a blockchain project, you will receive a certain amount of project tokens in exchange. No matter how one denies it, most people strongly expect that these project tokens will surge in value after the project's success, yielding substantial profits.
Of course, you can argue that buying tokens is just a donation, with no one promising or expecting a return. However, regulatory enforcement sees through such rhetoric and looks at the essence. You expect the project team to work hard to build the project and bring you substantial returns.
In the U.S., this is known as the "Howey Test." If a project's tokens are determined to be an investment contract, i.e., securities, then issuing tokens becomes illegal and constitutes the illegal issuance of securities.
Perhaps this explains why Ethereum established a foundation instead of a company.
Legally, a foundation is a company, but it is non-profit.
Why go to such lengths to make this centralized entity appear non-profit in the traditional sense?
Because one of the criteria in the Howey Test states that you expect to profit from the efforts of the invested enterprise.
So, if this is a foundation, a non-profit entity with no profits, does it not then meet the Howey Test's violation standards?
In fact, this kind of play has long been an old trick in publicly listed internet companies. Have you not seen some overseas-listed internet giants that are clearly profitable yet deliberately manipulate their financial statements to show losses, calling it strategic loss? They aim to exchange business losses for excessive reinvestment, which in turn leads to super-fast growth, resulting in a significant increase in stock prices. Ultimately, they use domestic business losses to achieve soaring stock prices in overseas markets, thereby reducing domestic taxes and increasing overseas profits.
Behind them often stand Wall Street financial capital. Under this model, listed companies become conduits for the transfer of wealth, converting domestic population dividends and infrastructure benefits not into national tax revenue and public welfare, but into dividends for overseas shareholders, filling the pockets of company founders, veterans, investors, and Wall Street financial capital.
It can be seen that the early foundation model of web3 merely copied the strategic loss tactics of web2, and with a non-profit foundation, it directly fixed the framework.
As we reached the meme coin era of 2023-2024, the tactics further evolved.
Isn't one of the Howey Test criteria that investor profits must come from the efforts of others (usually the project team)? I simply state that the project team has no intention of making any effort!
How to prove that no effort was made? There is no project team.
Without a project team, no one commits to making any effort.
Without effort, there are no profits created through hard work.
Without profits, there is no possibility of earning profits from the project.
Thus, this certainly does not meet the Howey Test's definition of securities.
So what is this? It is a purely speculative product.
After Trump personally launched a Trump meme, the U.S. Securities and Exchange Commission (SEC) also issued a formal statement declaring that meme coins are indeed not securities!
The "chives" were left dumbfounded. Isn't this just exploiting a legal loophole? But they are indeed following the established game rules. The reason "chives" are "chives" is that they actually believe the scythe is competing fairly on the same level as themselves, fantasizing that they can survive and even get rich under the sharp scythe's harvest.
The logic of capitalist rule of law is that the law prohibits using A, B, C, D to exploit the "chives," but if they innovate and use something that is neither B nor D to exploit the "chives," and they succeed, they will not only not be condemned but will also receive applause for their innovative methods of exploitation.
Less impressive projects even choose not to establish a foundation, instead allowing the community to form a so-called DAO (Decentralized Autonomous Organization) to raise their hands in innocence—"We really have no project team working for the project; it's all community contributions."
In contrast, strong projects like Trump Meme openly use a company as the operating entity and project team. After all, they possess higher-level bourgeois legal rights and can even modify legal provisions to pave the way for themselves.
Previously, those who were evasive and exploited the "chives" while waving the banner of decentralization have gradually realized that the big brother is leading everyone to go all out!
Thus, we have seen that in the past six months, more and more blockchain projects are returning to centralized corporate structures, no longer shying away from having a substantial centralized entity behind the project, and even aiming to enter traditional securities markets, following traditional compliant financing operations.
This bull market has thus produced a more grandiose narrative that sounds more exciting to the "chives": institutional bull.
Amidst the noise, people may have long forgotten, or perhaps never cared, that BTC has never had any foundation, DAO, or company.
BTC has never had any so-called governance; why would it need a centralized entity to take on governance responsibilities?
It simply continues to strive towards greater decentralization.
The slippery slope fallacy always occurs. Once we accept a little centralization, gradually, the entire project will slide towards centralization.
Perhaps decentralization is not absolute; it is absolutely not decentralization.
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