Author: a16z crypto
Compilation: Jiahuan, ChainCatcher
Crypto assets are no longer a niche market. Stablecoins carry trillions of dollars in transactions annually, and major banks and payment companies are developing on-chain businesses. However, U.S. federal rules regulating these activities remain incomplete.
The 'CLARITY Act' aims to address this issue. The bill proposes to establish a federal regulatory framework for the crypto market, delineating the responsibilities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). It would require project disclosures, restrict insider activities, and bring intermediaries like trading platforms under a regulatory system similar to that of traditional finance. If passed, the bill would provide clear basic rules for blockchain systems, ending years of uncertainty that have stifled innovation and exposed consumers to risk.
This article is a Q&A piece released by a16z crypto based on a recent video conversation. The participants are a16z co-founder Marc Andreessen and a16z crypto founder Chris Dixon.
The two discussed why the crypto industry needs clear and durable rules now, how the 'CLARITY Act' would protect consumers, and why regulatory ambiguity rewards rule-breakers. The conversation also covered illicit finance, privacy, and government ethics; what might happen if the bill fails to pass; why this is related to U.S. technological leadership; and why maintaining the status quo might be the greatest risk.
Why does the crypto industry need rules now?
Much has changed in the crypto industry since the Bitcoin whitepaper was published. Initially used mainly by amateurs and tech enthusiasts, it has now evolved into an industry with maturing infrastructure and increasing institutional participation.
The technology has grown into an industry. Stablecoins handle trillions of dollars in transactions annually, comparable in scale to the Visa network. Large financial institutions like banks, asset managers, card networks, and fintech companies are developing products around stablecoins, tokenized stocks, tokenized deposits, and other digital assets. The underlying networks have also become faster and cheaper: transactions that once cost dollars can now be settled on widely used blockchains in less than a second for less than a penny.
For various reasons, U.S. regulation of crypto assets has been split into two parts: stablecoins, and the market beyond stablecoins. The 'GENIUS Act', effective July 2025, establishes a federal framework for stablecoins, but the blockchain networks and trading markets that stablecoins rely on still lack a comprehensive federal regulatory regime. It's like regulating phones while leaving communication towers in a legal gray area.
"We're not asking for special favors, subsidies, protectionist policies, or any other forms of support. We just want a stable, long-term framework that allows people to operate responsibly. To me, this is a natural request on many levels."
——Marc Andreessen
Regulatory guidance can fill some of the gaps, but it cannot replace legislation. Such guidance can change with shifts in agency leadership or new administrations. When a business decides whether to invest in an endeavor that may take five or even ten years to mature, it needs to know what the rules are, which regulator has jurisdiction, and whether a product developed today will remain legal tomorrow.
The 'CLARITY Act' would provide a long-term framework for responsible business operations.
How will the 'CLARITY Act' protect consumers?
The most basic consumer protection issue in the current crypto market is that crypto trading platforms are not subject to a comprehensive federal regime, unlike major securities and commodities trading venues like the New York Stock Exchange and Nasdaq, which have long been under such regulation.
The New York Stock Exchange and Nasdaq have clear federal regulators. In contrast, crypto trading platforms lack a market-wide regime for registration, supervision, auditing, disclosure, transaction monitoring, and customer asset protection. The 'CLARITY Act' would provide a clear path for digital assets to move from SEC regulation to CFTC regulation.
Federally registered crypto trading platforms would be subject to auditing and financial control requirements. Platforms must safeguard customer assets, comply with anti-fraud and insider trading prohibitions, and provide operational information to regulators. Companies refusing to meet these standards would not be able to operate legally in the United States.
These requirements help prevent situations like those that led to the FTX collapse. FTX allegedly transferred funds between related entities, had insufficient internal controls, and held fewer customer assets than claimed. Federal regulation cannot guarantee fraud will never occur, but it can significantly increase the difficulty of concealing it and allow regulators to intervene before problems escalate into disasters.
"You need a regime first. Companies need risk controls, compliance, audits... We also need it to prevent disasters, to avoid more FTXes."
——Marc Andreessen
The same principle applies to products sold under the 'stablecoin' label. Terra-Luna was marketed as a stable asset but lacked dollar reserves or other stable reserve backing. Under a stablecoin regulatory framework, compliant dollar stablecoins must be fully backed by corresponding reserves and audited. The 'CLARITY Act' would bring similar constraints to other parts of the crypto market.
How does the 'CLARITY Act' prevent regulatory ambiguity from rewarding rule-breakers?
Ambiguous regulatory rules trigger a race to the bottom.
A U.S. company serious about compliance might need to invest heavily in lawyers, internal controls, audits, sanctions screening, and customer protection. These efforts are costly and can slow product development. Offshore competitors can skip these expenses, copy products, offer services at lower prices, and move faster—with that speed precisely coming from not doing compliance.
The result is that uncertainty punishes responsible businesses while benefiting offshore competitors. Law-abiding U.S. trading platforms bear all compliance costs, while non-compliant offshore platforms that continue serving U.S. users should not be allowed to operate.
"Right now, it's extremely unclear which rules apply to which entities. I recognize that wherever there are gray areas in regulation, markets will basically race to the bottom... This ambiguity ultimately benefits bad actors."
——Chris Dixon
The 'CLARITY Act' would delineate regulatory boundaries: which businesses qualify as intermediaries, what rules apply to them, which agency oversees them, and the consequences of non-compliance. Companies that custody customer funds or facilitate financial transactions would have to comply with anti-money laundering, sanctions, and Treasury regulations similar to those for payment providers, fintechs, and other financial institutions.
Clear rules benefit businesses willing to meet standards; gray areas benefit those who exploit loopholes.
How will the 'CLARITY Act' strengthen sanctions enforcement?
Privacy is not anonymity. Public blockchains are often described as anonymous systems, but in practice, many public chains are highly transparent.
Transactions are permanently recorded on a public ledger. Wallet addresses don't directly display legal names, but investigators can trace fund flows and link these activities to exchanges, accounts, devices, or other identifying information. Records persist for years, so law enforcement may find evidence from transactions that wasn't available at the time they occurred.
Some payment methods leave no public trail, but blockchains leave a traceable path. That's why some national security officials describe crypto transactions as 'creating a ledger for future prosecution': records left today may later help investigators identify and prosecute criminals.
"It applies the same anti-money laundering and Treasury rules that apply to other market intermediaries to crypto intermediaries."
——Chris Dixon
But traceability and privacy are different issues. A person shouldn't have to disclose every medical expense or transfer to the world just to use a blockchain. The existing financial system also recognizes that ordinary people need privacy, while regulated institutions must still fulfill sanctions and anti-money laundering obligations.
Early debates around internet cryptography provide a useful reference. Strong encryption was once seen as a threat because criminals could use it; in export controls, it was even classified alongside military technology. But it was encryption that made secure banking, e-commerce, and confidential communication possible.
"Is cryptography bad because bad people will use it for bad things? Or is cryptography foundational for building trust, conducting business, and allowing law-abiding citizens domestically and internationally to collaborate and do business, making it inherently valuable?"
——Marc Andreessen
Blockchain privacy faces the same line. Privacy protects lawful activities; concealment aimed at evading the law remains subject to law enforcement pursuit.
How does the 'CLARITY Act' handle the stablecoin rewards controversy while allowing banks to continue developing on-chain business?
Banks argue that stablecoin issuers and wallet providers should not, by paying interest on balances, effectively recreate deposit accounts outside the banking system. They worry that consumers might move deposits from banks into stablecoin products, reducing the funds banks use for lending.
The 'CLARITY Act' addresses this concern: the bill prohibits paying interest on stablecoin balances, as well as products that are functionally or economically equivalent to interest-bearing accounts.
However, the bill still allows rewards based on transaction behavior. Wallet providers or retailers can reward customers for using stablecoins to make purchases, similar to how credit cards offer points or retailers operate loyalty reward programs. The distinction is that the former rewards consumption behavior, while the latter pays interest merely for holding a balance.
This compromise largely satisfies the banks' main demands without going so far as to prohibit ordinary reward programs. Many existing reward programs offered by card networks, payment apps, and retailers operate on a similar model.
It is worth noting that the banks raising these concerns are themselves adopting blockchain technology. Large financial institutions like Goldman Sachs, Fidelity, BlackRock, Stripe, Wells Fargo, and JPMorgan Chase have already developed or support blockchain products.
"One of the changes blockchain brings to finance is providing a unified framework that allows people to say, 'Okay, let's move into the 21st century together.' So, it solves not just a technological problem but a coordination problem."
——Chris Dixon
Banks see the same opportunity as the crypto industry: existing financial infrastructure is fragmented and difficult to overhaul. Blockchain provides a shared framework that allows financial institutions to reduce intermediary layers, settle assets on common infrastructure, and collaboratively modernize without requiring each bank to rebuild its own interconnected system separately.
When are software developers liable?
The 'CLARITY Act' distinguishes between two types of conduct: knowingly aiding someone who will commit a crime, and releasing general-purpose software. Developers remain liable if they build tools for criminal use, market tools to criminals, or directly assist illegal activities.
What the bill does not accept is another approach: holding developers to unlimited liability for all unforeseeable and uncontrollable downstream uses. Open-source code can be copied, modified, and deployed by people the developer has never met, in scenarios the original author never envisioned. Requiring developers to be responsible for all such uses would make open-source software development or funding nearly impossible.
"It's simply not feasible and would make software development impossible because no developer can predict how software will be used in the future. You don't even have to look at it just from a software perspective; the same goes for any product. If I run a hotel and a criminal stays there and plans a crime in the hotel, does that make me an accomplice?"
——Marc Andreessen
Its impact is not limited to the crypto industry. Academic research, startups, venture capital, and open AI models all rely on open-source software. A viable line of liability should be based on intent and actual participation: a person should be held accountable when they knowingly and intentionally assist a crime; the later misuse of a neutral tool by others should not automatically make the tool's developer liable.
How exactly does the 'CLARITY Act' handle securities law?
A security does not automatically become a non-security just because it's placed on a blockchain. Tokenized stocks are still stocks, still securities, and remain regulated by the SEC. Companies cannot evade disclosure, registration, and investor protection requirements simply by moving assets onto a chain or calling them 'tokens.'
"All the 'CLARITY Act' does is write this into law and provide clear definitions. That way, people can know exactly where they stand without having to go to court every time to find out."
——Chris Dixon
The bill addresses another issue: how to regulate digital assets related to blockchain networks whose nature changes as the network evolves.
In brief, the 'CLARITY Act' establishes a risk-based framework. A new blockchain network typically starts with a centralized entity: founders, a company, or a small team may control the network, possess information unknown to the public, and make decisions affecting token value. At this stage, the relevant asset would be regulated by the SEC, subject to requirements similar to securities, including disclosure, insider restrictions, and lock-up periods for founders and early investors.
As the network develops, control may gradually decentralize. If the network reaches the decentralization threshold defined in the bill, the nature of the relevant asset may resemble a commodity more than a corporate security. At that point, regulatory responsibility would shift to the CFTC.
This does not mean the asset becomes unregulated. Commodity regulation also addresses abuse like fraud, market manipulation, and cornering. The regulator changes because the nature of the asset itself has changed.
The bill would also introduce restrictions not currently clearly defined. While the network is still controlled by a centralized entity, founders, venture capital firms, and other insiders may face longer lock-up periods and stricter disclosure obligations. These restrictions aim to prevent insiders from dumping assets onto the market before ordinary participants have access to equivalent information or before the product has developed into a sufficiently decentralized network.
What happens if the 'CLARITY Act' fails to pass?
Crypto regulation will not disappear. Agencies like the SEC, CFTC, and the U.S. Treasury have been issuing regulatory guidance and using existing authority to formulate rules within their respective jurisdictions; if the bill fails, they are likely to continue doing so.
The problem is that interpretations of the law by regulatory agencies can change after a change in administration. A business may invest years developing a product based on one set of expectations, only to suddenly face a completely different interpretation after an election or agency leadership change.
This uncertainty affects not only investment but also consumer protection. A long-term framework would clarify regulatory authority while requiring businesses to register, disclose information, protect customer assets, and comply with market rules. Without legislation, these responsibilities would remain scattered across different regimes, prone to disputes and subject to change.
"If the rules under your feet keep changing, businesses are naturally less willing to invest significant time and money in development."
——Chris Dixon
The industry has already endured years of aggressive enforcement and political hostility. The more likely outcome is not that the industry disappears, but that businesses continue shifting their development to other regions. This would result in less oversight the U.S. can exercise. U.S. regulators would find it harder to supervise offshore firms, and law enforcement would have less reach over these companies; their willingness to build products around U.S. standards would also diminish.
Why does the 'CLARITY Act' continue America's tradition of technological leadership?
Once a technology is invented, it typically doesn't disappear. The real question is: where will it develop, which companies will become dominant, and whose rules will shape it.
For over a century, America has benefited from major technologies being born and developing within its borders. Technological leadership brings companies, jobs, tax revenue, expertise, provides economic resources for national priorities, and offers security advantages.
"Regardless of political affiliation, every American citizen should want America to be the global technology leader."
——Marc Andreessen
The history of crypto development illustrates the stakes. When the U.S. restricted strong encryption exports, foreign competitors didn't stop developing; they placed their products outside the U.S., and users turned to those products. After adjustments to the restrictions, U.S. companies were able to participate in building the secure internet economy.
Blockchain technology presents the same issue. The future financial system, technical standards, and leading companies will emerge somewhere. If they develop primarily overseas, America will lose both economic opportunity and regulatory influence.
The 'CLARITY Act' would give responsible businesses a reason to build under U.S. law. a16z believes this will benefit consumers, law enforcement, and national security, and help the U.S. participate in setting standards for the next generation of financial infrastructure.
Which other organizations support the 'CLARITY Act'?
Supporters of the 'CLARITY Act' include lawmakers, law enforcement organizations, financial institutions, and technology companies.
This legislation is the result of years of bipartisan effort in the U.S. Congress. Lawmakers from both parties have been working to establish a federal framework for digital asset markets. The Fraternal Order of Police, America's largest law enforcement organization, has also expressed support for the bill, refuting claims that it would weaken sanctions or anti-money laundering enforcement.
"The Fraternal Order of Police just announced its support for the 'CLARITY Act.' It's the largest law enforcement organization in the U.S."
——Chris Dixon
Support also comes from the financial industry. Goldman Sachs CEO David Solomon has endorsed the 'CLARITY Act,' and other financial institutions and fintech companies are already developing blockchain products. a16z believes that support from diverse fields indicates a growing consensus that America needs clear, enforceable rules for digital asset markets.
When market rules are ambiguous, consumers cannot be sure what protections they have; responsible businesses bear high compliance costs, while offshore competitors can circumvent these requirements. The 'CLARITY Act' seeks to replace this state of uncertainty with a clear regime.
The real comparison is not between the 'CLARITY Act' and another hypothetical law, but between the regime after the bill's passage and the current state. a16z believes that by providing a clear path for responsible businesses, the bill can strengthen consumer protection, support law enforcement, and increase the likelihood that the next generation of financial technology develops in the United States.
