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Two major scandals have highlighted how foundations and crypto don’t necessarily mix – and also demonstrated how Swiss authorities have little to no interest in entering the fray.

In 2017, Tezos raised $232 million through an MME-organized Swiss foundation. Tezos’ creators began fighting over control with a foundation head they had appointed – and subsequently were unable to oust. The months-long feud spawned a class-action lawsuit in the U.S. by Tezos’ investors, which is still ongoing. 

At the heart of the Tezos skirmish is whether the backers invested with an expectation of a return or, as developers Arthur and Kathleen Breitman have argued, donated as one would to a charitable community project. MME's Mueller didn't comment on Tezos, but noted that Swiss foundations should not be used for commercial purposes including coin offerings.

Tezos Undecided

The dilemma hasn’t been solved – though Tezos initially countered the foundation dispute by incorporating. It has since allotted more operational freedom to the foundation since the battle was resolved, reportedly with a $400,000 kiss-off. Tezos said «it has not been decided if the Tezos AG will play any additional role in the future».

«It doesn’t make sense to tie up commercial activities in a Swiss foundation if the people involved expect a profit, or view it as an investment», Arter said. Cardano, also an MME client, is another prominent example. The crypto firm had trouble getting rid of what it claimed was an ineffectual and nepotistic foundation head. The spat was eventually settled privately.

«One of the biggest problems was that many of these recent foundations were set up in a very commoditized and simplified manner, often without a lot of clarity about the project and frequently with only the most basic statutes one can apply to the structures», according to Arter. MME's Mueller said there is no standardized form of a Swiss foundation.

Bern Taken Aback

Regulation is another issue. Officially, foundations are overseen by the Swiss government. The Swiss authority was taken aback by the the success of the foundation model for crypto firms.

«It was an absolutely new topic» with many unanswered questions around the management, accounting, and regulation of foundations, Piraino noted. In practice, the governmental oversight means simply a yearly look at the foundation’s accounts, with very little regulation. A spokesman for the Bern-based foundation regulator declined to comment.

MME's Mueller denied that the high-profile crypto scandals had dented the image of his firm, which has roughly 25 people on staff working on fintech and blockchain. «On the contrary: the Ethereum Foundation laid the groundwork in this area, and the staffing challenges at Tezos and Cardano led to foundation governance being further developed», he said.  

«A Difficult Animal»

To be sure, foundations still fill a need in blockchain projects, for example to keep protocols independent and protected from a rapid sale by investors, according to Froriep's Arter, whose work includes crypto foundations.  But the flood of Swiss foundations for digital asset start-ups seems permanently over.

Piraino said her firm talks to many people in the crypto space, especially from abroad, about Swiss set-ups. «We advise them to properly assess all the various structures. Because a foundation is a difficult animal to manage», she said.