Author: a16z crypto
Compiled by: Jiahuan, ChainCatcher
Cryptocurrency assets are no longer a niche market. Stablecoins process trillions of dollars in transactions annually, and major banks and payment companies are developing on-chain services. However, U.S. federal regulations governing these activities remain incomplete.
The CLARITY Act is designed specifically to address this issue. The bill proposes to establish a federal regulatory framework for the crypto market, delineating the responsibilities between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), requiring project teams to disclose information and restrict insider behavior, while bringing intermediaries such as trading platforms under a regulatory system similar to that of traditional financial markets. If passed, the bill would provide blockchain systems with clear foundational rules, ending years of uncertainty that have hindered innovation and exposed consumers to risk.
This article is a Q&A compiled and published by a16z crypto based on a recent video conversation. The participants in the conversation are a16z co-founder Marc Andreessen and a16z crypto founder Chris Dixon.
The two discussed why the crypto industry now needs clear and enduring rules, how the CLARITY Act will protect consumers, and why regulatory ambiguity benefits bad actors. The conversation also covered illicit financial activities, privacy, and government ethics; what happens if the bill fails to pass; why this matters for America’s technological leadership; and why maintaining the status quo may be the greatest risk of all.
Why does the crypto industry need regulations now?
Since the release of the Bitcoin whitepaper, the crypto industry has undergone significant changes. Initially used primarily by hobbyists and tech enthusiasts, it has now evolved into an industry with increasingly mature infrastructure and growing institutional participation.
This technology has grown into an industry. Stablecoins process trillions of dollars in transactions annually, rivaling the volume of the Visa network. Major financial institutions—including 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 several dollars now settle in under a second on widely used blockchains for less than a cent.
For multiple reasons, U.S. regulation of crypto assets has been split into two parts: stablecoins, and markets outside of stablecoins. The GENIUS Act, effective July 2025, establishes a federal framework for stablecoins, but the blockchain networks and trading markets upon which stablecoins rely still lack a comprehensive federal regulatory regime. This is like regulating only the phone while leaving cell towers in a legal gray area.
We are not trying to gain an advantage, nor are we here to demand subsidies, protectionist policies, or other forms of support. We simply want a long-term, stable framework that allows everyone to conduct business responsibly. In my view, this is a completely natural requirement on many levels.
——Marc Andreessen
Guidance issued by regulators can fill some gaps, but it cannot replace legislation. Changes in leadership at regulatory agencies or a new government coming into power may alter this guidance. When businesses decide whether to invest in a venture that may take five or even ten years to yield results, they must know the rules, which regulatory authority has jurisdiction, and whether the products they develop today will still be legal tomorrow.
The CLARITY Act will provide a long-term framework for businesses to operate responsibly.
How will the CLARITY Act protect consumers?
The most fundamental consumer protection issue in today’s crypto market is that crypto trading platforms are not subject to a comprehensive federal regulatory framework, unlike major securities and commodities exchanges such as the New York Stock Exchange and Nasdaq, which have long been under such oversight.
The New York Stock Exchange and Nasdaq have clear federal regulatory bodies. In contrast, cryptocurrency trading platforms lack comprehensive market-wide systems for registration, oversight, auditing, disclosure, trade monitoring, and customer asset protection. The CLARITY Act will provide a clear pathway for digital assets to transition from SEC oversight to CFTC oversight.
Cryptocurrency exchanges registered with the federal government will be subject to audit and financial control requirements. Platforms must safeguard customer assets, comply with anti-fraud and insider trading prohibitions, and provide operational information to regulators. Companies that fail to meet these standards will not be permitted to operate legally in the United States.
These requirements help prevent a repeat of the FTX collapse. According to allegations, FTX transferred funds between affiliated entities, had inadequate internal controls, and held customer assets that did not match the amounts it claimed to have. Federal regulation cannot guarantee that fraud will never occur, but it can significantly increase the difficulty of concealing fraud and enable regulators to intervene before issues escalate into disasters.
A system must be in place first. Companies must have risk controls, comply with regulations, and be subject to audits... We must also use it to prevent disasters and avoid more FTX-like incidents.
——Marc Andreessen
The same principles apply to products marketed as "stablecoins." Terra-Luna was promoted as a stable asset, but it was not backed by U.S. dollar reserves or any other stable reserve assets. Under a stablecoin regulatory framework, compliant USD stablecoins must be fully backed by corresponding reserves and subject to audits. The CLARITY Act will extend similar constraints to other parts of the crypto market.
How does the CLARITY Act prevent regulatory ambiguity from rewarding violators?
Ambiguous regulatory rules will trigger a race to the bottom.
A U.S. company that takes compliance seriously may need to invest heavily in legal counsel, internal controls, auditing, sanctions screening, and customer protection. These efforts are costly and can slow down product development. Offshore competitors, however, can avoid these expenses, replicate the product, offer services at lower prices, and move faster—speed that comes precisely from skipping compliance.
As a result, uncertainty punishes responsible businesses while benefiting offshore competitors. Legally compliant U.S. trading platforms bear the full cost of compliance, while non-compliant offshore platforms should not continue to serve U.S. users.
It is currently very unclear which rules apply to which institutions. I recognize that as long as regulatory gray areas exist, markets generally tend toward a race to the bottom... this ambiguity ultimately benefits bad actors.
——Chris Dixon
The CLARITY Act will define regulatory boundaries: which entities qualify as intermediaries, what rules apply to them, which agency oversees them, and what consequences follow non-compliance. Any company that holds customer funds or facilitates financial transactions must comply with anti-money laundering, sanctions, and Treasury regulations similar to those applied to payment service providers, fintech companies, and other financial institutions.
Clear rules benefit businesses that want to meet standards; gray areas benefit those who seek to exploit loopholes.
How will the CLARITY Act strengthen sanctions enforcement?
Privacy is not the same as anonymity. People often refer to public blockchains as anonymous systems, but in practice, many public chains are highly transparent.
Transactions are permanently recorded on a public ledger. While wallet addresses do not directly display legal names, investigators can trace the flow of funds and link these activities to exchanges, accounts, devices, or other identifying information. Records persist for years, allowing law enforcement to uncover evidence that may not have been available at the time of the transaction.
Some payment methods leave no public trace, but blockchain creates a trackable path. This is why some national security officials describe cryptocurrency transactions as “leaving a trail for future prosecution”: records left today may one day help investigators identify and prosecute criminals.
It applies anti-money laundering and Treasury regulations, originally designed for other market intermediaries, to cryptocurrency intermediaries as well.
——Chris Dixon
But traceability and privacy are two different issues. No one should be forced to publicly disclose every medical expense or transfer just to use blockchain. The existing financial system also recognizes that ordinary individuals need privacy, while regulated institutions must still fulfill sanctions and anti-money laundering obligations.
Early debates surrounding internet encryption technology provide a useful reference. Strong encryption was once viewed as a threat because criminals could also use it; in export controls, it was even classified alongside military technology. Yet it is encryption that has made secure banking, e-commerce, and confidential communication possible.
Just because bad actors use encryption for harmful purposes, does that make encryption bad? Or is encryption, as a foundation for building trust, enabling commerce, and allowing law-abiding citizens both domestically and internationally to cooperate and do business, inherently valuable?
——Marc Andreessen
Blockchain privacy faces the same boundary: privacy protects legitimate activities; concealment intended to evade the law is still subject to law enforcement action.
How does the CLARITY Act address the stablecoin rewards controversy while enabling banks to continue developing on-chain businesses?
Banks believe that stablecoin issuers and wallet service providers should not indirectly recreate deposit accounts outside the banking system by paying interest on balances. They are concerned that consumers may shift deposits from banks into stablecoin products, thereby reducing the funds banks have available for lending.
The CLARITY Act addresses this concern by prohibiting the payment of interest on stablecoin balances and banning products that are functionally or economically equivalent to interest-bearing accounts.
However, the bill still permits rewards based on transaction behavior. Wallet providers or retailers can reward customers who use stablecoins for purchases, similar to how credit cards offer points or retailers operate loyalty programs. The key difference is that the former rewards spending behavior, while the latter earns interest simply by holding a balance.
This compromise largely satisfies the banks' primary concerns without going as far as banning standard reward programs. Many reward programs currently offered by card networks, payment apps, and retailers also follow a similar model.
Notably, the banks making these demands are themselves adopting blockchain technology. Major financial institutions such as Goldman Sachs, Fidelity, BlackRock, Stripe, Wells Fargo, and JPMorgan Chase have already developed or supported blockchain products.
One change blockchain brings to finance is providing a unified framework that allows everyone to say, “Alright, let’s all step into the 21st century together.” So, it solves not just technical problems, but also coordination issues.
——Chris Dixon
Banks see the same opportunity in the crypto industry: existing financial infrastructure is fragmented and difficult to overhaul. Blockchain provides a shared framework that enables financial institutions to reduce intermediary layers, settle assets on a common infrastructure, and collaboratively modernize without requiring each bank to independently rebuild a network of interconnected systems.
Under what circumstances are software developers held liable?
The CLARITY Act distinguishes between two behaviors: providing assistance knowing that others will commit crimes, and releasing general-purpose software. Developers will still be held accountable if they create tools for criminal purposes, market tools to criminals, or directly assist illegal activities.
The bill rejects another approach: holding developers liable for unlimited responsibility for all unforeseeable and uncontrollable downstream uses. Open-source code can be copied, modified, and deployed by people the developers have never met, and used in scenarios the original authors never envisioned. If developers were required to be responsible for all such uses, open-source software would likely cease to be developed or funded.
This is simply impossible and would make software development unfeasible, because no developer can predict how their software might be used in the future. This isn’t just true for software—it applies to any product. If I run a hotel and a criminal checks in and plans a crime there, does that make me an accomplice?
——Marc Andreessen
Its impact extends beyond the cryptocurrency industry. Academic research, startups, venture capital, and open-source AI models all rely on open-source software. A reasonable boundary of responsibility should be based on subjective intent and actual involvement: a person should be held accountable when they knowingly assist in criminal activity; the subsequent misuse of a neutral tool by others should not automatically impose liability on its developers.
How exactly will the CLARITY Act address securities law?
A security does not automatically cease to be a security simply because it is placed on a blockchain. Tokenized stocks are still stocks and remain securities, subject to continued regulation by the SEC. Companies cannot circumvent disclosure, registration, and investor protection requirements merely by moving assets onto a blockchain or labeling them as “tokens.”
What the CLARITY Act does is simply put this into law and provide a clear definition, so everyone knows exactly where they stand without having to go to court each time to find the answer.
——Chris Dixon
The bill addresses a different issue: how to regulate digital assets associated with blockchain networks, whose nature evolves as the network develops.
In brief, the CLARITY Act establishes a risk-based framework. A new blockchain network typically begins under the control of a centralized entity: founders, a company, or a small team may control the network, possess information unknown to the public, and make decisions that affect token value. During this stage, the associated assets will be regulated by the SEC and subject to securities-like requirements, including disclosure obligations, insider restrictions, and lock-up periods for founders and early investors.
As the network evolves, control may gradually become decentralized. If the network reaches the decentralization threshold specified in the law, the nature of the related assets may more closely resemble commodities rather than corporate securities. At that point, regulatory responsibility would transfer to the CFTC.
This does not mean the asset is now unregulated. Commodity regulation also addresses abuses such as fraud, market manipulation, and hoarding. Regulators have shifted because the nature of the asset itself has changed.
The bill will also introduce restrictions that are currently not clearly defined. During the period when the network remains under the control of centralized entities, founders, venture capital firms, and other insiders may face longer lock-up periods and more stringent disclosure requirements. These restrictions aim to prevent insiders from selling assets to the market before ordinary participants have equal access to 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 such as the SEC, CFTC, and the U.S. Department of the Treasury have consistently issued regulatory guidance and are using their existing authority to establish rules within their respective jurisdictions; even if the bill fails to pass, they will likely continue doing so.
The issue is that after a government transition, regulatory agencies may change their interpretation of the law. Companies may spend years developing products based on one set of expectations, only to suddenly face a completely different interpretation following an election or a change in institutional leadership.
This uncertainty affects not only investment but also consumer protection. A long-term framework can clarify the powers of regulators while requiring businesses to register, disclose information, safeguard customer assets, and comply with market rules. Without legislation, these responsibilities remain scattered across different systems and are subject to constant dispute.
If the rules underfoot keep changing, companies will naturally be less willing to invest significant time and money into development.
——Chris Dixon
This industry has endured years of strict enforcement and political hostility; the more likely outcome is not the industry’s disappearance, but rather companies continuing to relocate to other regions. As a result, the oversight the United States can exert will diminish. U.S. regulators will find it harder to monitor offshore entities, and law enforcement will struggle to reach these companies; their willingness to build products around U.S. standards will also be lower.
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, the United States has benefited from the advantage of major technologies being developed and emerging within its borders. Technological leadership brings businesses, jobs, tax revenue, and expertise, provides economic resources for national priorities, and delivers security advantages.
Regardless of political stance, every American citizen should hope that the United States becomes a global leader in technology.
——Marc Andreessen
The history of cryptographic development illustrates the stakes involved. When the United States restricted the export of strong encryption technology, foreign competitors did not stop developing it; instead, they released their products outside the U.S., and users shifted to these alternatives. Only after the restrictions were adjusted did U.S. companies gain the opportunity to participate in building a secure internet economy.
Blockchain technology presents the same issue. Future financial systems, technical standards, and leading companies will emerge somewhere. If they develop primarily overseas, the United States will lose both economic opportunities and regulatory influence.
The CLARITY Act will give responsible businesses a basis under U.S. law to build. a16z believes this will benefit consumers, law enforcement, and national security, and help the United States shape the 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 worked to establish a federal framework for the digital assets market. The Fraternal Order of Police, the largest law enforcement organization in the United States, has also voiced support for the bill and refuted claims that it would weaken sanctions or anti-money laundering enforcement.
The Police Brotherhood has just announced its support for the CLARITY Act. It is the largest law enforcement organization in the United States.
——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 have already been developing blockchain products. a16z believes that support from diverse sectors indicates a growing consensus that the United States needs clear, enforceable rules for the digital assets market.
When market rules are unclear, consumers cannot determine what protections they are entitled to; responsible businesses face high compliance costs, while offshore competitors can circumvent these requirements. The CLARITY Act seeks to replace this uncertainty with a clear set of regulations.
What truly needs to be compared is not the CLARITY Act versus some hypothetical law, but the system that would result from the Act’s passage versus the current status quo. a16z believes that by providing a clear path forward for responsible businesses, the Act can strengthen consumer protection, support law enforcement, and increase the likelihood of next-generation financial technologies developing in the United States.