Source: a16z

Translation: Chopper, Foresight News

In a recent episode of the a16z crypto podcast, a16z founder Marc Andreessen and a16z crypto founder Chris Dixon joined host Robert Hackett for a discussion around the CLARITY Act. This market structure legislation is currently progressing through the Senate, and whether the bill passes or stalls will have far-reaching implications. Below is the transcript of the conversation, which has been succinctly edited for clarity. You can watch the full episode to hear the entire discussion.

Robert: The U.S. Congress is reviewing a once-in-a-century market structure legislation that may determine where the future financial system and internet technologies will develop. This bill passed with bipartisan support in the House last year and has been under review in the Senate ever since.

Now, many debates and obstacles have arisen around this technology, which we will discuss in detail later. But before that, let's take a broad view and talk about why regulatory clarity is so crucial, what the costs of maintaining the status quo are, and what this bill means for the U.S. and for everyone who might use this technology in the future.

Marc, let's hear your thoughts first. In January 2014, you published a column in The New York Times titled "Why Bitcoin Matters." The environment back then was completely different from now, as this was a highly controversial viewpoint. The so-called crypto industry at that time looked nothing like it does today. What changes have occurred in the industry from then to now?

Marc: No problem. 2014 feels like a long time ago, and The New York Times even published positive articles on the crypto industry back then, which seems like centuries ago now. I still take pride in that article; many of its points still hold true today. The article was born during the fifth year of this macro tech wave, and back then, believing in the long-term value of this technology was itself a rather disruptive thing.

Many people need to learn, accept, and participate, which still holds true today. Looking back, the only adjustment needed is to replace every mention of "Bitcoin" in the article with "cryptocurrency." The idea at the time was that Bitcoin could develop further, enabling the tokenization of real assets and applications like NFTs. Of course, this trajectory did not unfold as expected. Subsequently, multiple brand-new blockchain and crypto platforms emerged, leading to the eventual creation of Ethereum and a host of public blockchains. Initially, a piece of technology gradually evolved into a full-fledged industry. Bitcoin itself has achieved tremendous success over the years, but what’s more notable is the overall innovation explosion in the entire sector.

Robert: I must admit, many points in that article still stand up today. One prediction that struck me was: "In the coming years, there will be many grand stories around this new technology." You accurately predicted the following developments.

Chris, you have also witnessed the industry transition from its early days to now. What changes have occurred compared to the startup phase?

Chris: Early participants in the industry were mostly enthusiasts and ardent supporters, part of a niche subculture. At that time, Bitcoin was the only mainstream technology, and as Marc mentioned, early emerging blockchains commonly faced a series of issues related to performance and scaling. Fast forward to today, and nearly every day we see large banks and fintech companies announcing platforms based on stablecoins, tokenized stocks, and various digital assets.

To briefly explain stablecoins: they function very similarly to what Marc described for Bitcoin; essentially, they are on-chain digital dollars. Today, the trading volume of stablecoins can rival that of the Visa network, with quarterly trading volumes reaching trillions of dollars. With stablecoins, you can open WhatsApp and transfer money almost at no cost to any area of the world, just like sending a text message. This is how capital circulation should work. As an internet pioneer, Marc should deeply understand this: the early visionaries of the internet expected scenarios like this to arrive much sooner. Due to various factors, this vision took time to manifest, but now, the dream of capital flowing freely like information bytes has finally become a reality. The entire industry is mature now, and its underlying infrastructure has significantly improved. Just three years ago, completing such transactions could require several dollars, even tens of dollars in fees. Now, on mainstream public chains like Solana and Ethereum, transaction confirmations take less than a second, and transfer costs are less than a cent.

Why the Crypto Industry Urgently Needs Regulatory Rules

Robert: You just mentioned that stablecoin transaction volume is already comparable to the Visa network, with trillions of dollars flowing through this system. A number of large financial institutions, including BlackRock, JPMorgan, Visa, Fidelity, and Mastercard, have all entered the space. The list could go on; numerous organizations are building their businesses on this technology. However, despite the industry's current state, a clear regulatory framework and policy guidance have been long absent. Why is establishing regulatory rules so urgent now?

Chris: There are multiple reasons why the regulatory topic in the crypto field has been split into two main areas: stablecoins and other digital asset markets. Last year, the GENIUS Act was passed by Congress and signed into law by the president, establishing a complete regulatory framework for stablecoins. Coincidentally, stablecoins have also been the fastest-growing segment over the past year. With clear regulatory boundaries, builders can have stable expectations.

For ordinary consumers in the U.S., if you use USDC or other stablecoins that meet the GENIUS Act’s standards, you can be sure that for every stablecoin issued, there is a corresponding one dollar in reserves held by the bank. This brings confidence and asset protection to consumers. If you are an institution, companies like banks, Stripe, and PayPal that want to enter the market will inevitably require predictable rules and a comprehensive regulatory framework to ensure that the businesses they build today are not just compliant for next year but can also operate sustainably for the next decade. Market participants need certainty.

One major unresolved issue is that stablecoins operate based on blockchain networks, but the blockchain field itself and other digital asset sectors lack a complete set of federal regulatory laws. This is precisely why the Senate's deliberation on the CLARITY Act is so significant. You could liken it to saying we implemented mobile phone regulation without rules for communication towers. One part of the technology field has a regulatory system, while the other part remains in uncertainty. Even in a blurred environment, entrepreneurs are still continuously building, trying to feel out the regulatory boundaries. There are two paths for policy development. The SEC, CFTC, and other regulatory bodies have released some guidelines. However, as you noted by pointing to the history of internet development, a mature industry's long-term growth relies on formal legislation. Therefore, we believe that legislation is imperative, which is also why the CLARITY Act is so crucial.

Robert: There are currently not completely absent rules. As you mentioned, stablecoins have relevant legislation but only covers a small part of the market while a vast field remains in regulatory limbo. Marc, why does the entire crypto sector need regulatory legislation, and why can’t the timing be further delayed?

Marc: The U.S. financial system has gone through similar phases multiple times. The classic example is the Securities Act, which birthed the SEC and established the stock market regulatory system. We do not seek policy subsidies, trade protections, or special favors. We simply hope to have a long-term stable regulatory framework that allows market participants to conduct business in compliance. From many perspectives, this is a reasonable expectation.

Chris: For instance, there are currently no federal regulators specifically overseeing cryptocurrency exchanges in the U.S. The New York Stock Exchange and Nasdaq operate under federal regulatory frameworks. A significant portion of the CLARITY Act aims to fill this gap, granting the SEC and CFTC regulatory authority and establishing an information disclosure system, anti-fraud rules, and insider trading regulations to create a regulatory framework consistent with traditional financial markets, which are the mature market rules Marc just mentioned. The FTX incident is the best proof of this; the exchange suffered a crisis due to the lack of regulatory audits. Once crypto exchanges complete federal registration, they will need to undergo standardized audits. The bill gives federal regulatory agencies full enforcement authority. Any platforms that fail to meet compliance requirements will not be allowed to conduct business in the U.S. The bill contains complex details, and this legislation has adhered to bipartisan collaboration throughout. Many of us have been advocating for the CLARITY Act's passage for over seven years; the House passed the bill's text over a year ago, and the Senate has been reviewing and adjusting it for a whole year. Financial industries have precedents of being included in regulation, and this bill translates commonly accepted principles of regulating mature industries to the crypto space. It clearly defines applicable entities, requiring crypto intermediary institutions to adhere to the same anti-money laundering and Treasury regulatory provisions as traditional financial institutions. The largest law enforcement agency in the U.S., the Fraternal Order of Police, recently expressed support for the CLARITY Act. Some opponents claim the bill lacks comprehensive enforcement support clauses, but that is not the case.

The Gray Regulatory Area Allows Illegal Financial Activities

Robert: Let's discuss one of the central issues of current debates: illegal financial activities.

Chris: The boundaries of current laws and regulations are extremely ambiguous. Upon long-term observation, when there’s a gray area in regulation, the industry is prone to "race to the bottom" competition.

I served as a director of Coinbase for a long time, and Marc is still a director there today. Coinbase is a domestic company that places great importance on regulatory compliance. However, compliance requires significant investment and slows down product iteration speed. Every year, new emerging foreign trading platforms pop up, saving massive compliance costs and seizing market share with lower fees and faster product updates. Ambiguous regulations ultimately benefit speculators and illegal practitioners. Comprehensive regulation (the CLARITY Act is heading in this direction) can clearly delineate regulatory scope.

For example, under the CLARITY Act, if you belong to a financial intermediary, like Coinbase, or any business that holds users' funds, you must comply with the same regulatory provisions as Stripe and PayPal. The bill clearly defines this in the text. As I said, multiple law enforcement agencies have publicly supported the bill.

Will the CLARITY Act encourage sanctions evasion? Privacy is not the same as concealment.

Robert: Marc, there is a criticism suggesting that this bill will help market participants evade sanctions. What is your view on this?

Marc: Most professionals I've encountered in national security do not agree with this point of view. On-chain transactions leave a complete trace, which contrasts sharply with many current terrorist financing models. Even within the industry, some assert that cryptocurrencies are inherently anonymous and transactions are untraceable. This perspective fundamentally stems from a lack of understanding of the technology.

Chris: Quite the opposite, many teams are investing substantial R&D resources to build blockchains with privacy features precisely because the vast majority of public chain transactions are fully transparent. We believe that privacy features have reasonable value but are certainly not for illegal activities. Imagine if you need to pay for medical or financial services; you wouldn't want everyone to see that transaction. Traditional financial systems also have privacy needs, which is a perfectly reasonable request.

With the adoption of the GENIUS Act and the prevalence of dollar stablecoins, the Washington policy circle has begun discussing privacy issues. We agree with this. It reminds me of the early days of internet development. Marc, wasn’t it your team that introduced the SSL protocol back then?

Marc: That’s right.

Chris: To provide some background for those unfamiliar with history, HTTPS technology came from Netscape. At that time, many people questioned why ordinary people needed to encrypt information transmission. Certainly, some criminals might misuse encryption technology, but after a long time, everyone realized that encryption technology is indispensable. 99.9% of the use cases are legitimate needs; ordinary people use encryption when logging into online banking and other daily scenarios.

Your team also went to Congress for hearings back then.

Marc: That back-and-forth lasted four years, highly similar to today's situation. When we launched the Netscape browser, it was the first widely distributed consumer software with public key encryption. During that era, encryption technology was categorized as military goods under the International Traffic in Arms Regulations (ITAR). In other words, the regulatory standards for encryption technology were on par with cruise missiles, and the Netscape browser was considered to fall under the same control category.

Thus, we could only offer a version with high-strength encryption within the U.S.; the version sold overseas had to intentionally weaken its encryption capabilities. It’s easy to imagine how dissatisfied overseas consumers were. The product packaging clearly stated, "Encryption strength is weaker; please do not trust," and sales overseas naturally suffered a massive blow.

Overseas competitors quickly seized the opportunity to replicate the browser and incorporate a full encryption scheme. Overseas users abandoned our product for competitors. We, a group of young people, went to Washington to lobby, trying to clearly outline our points, but officials often responded with confusion.

The debate ultimately centered on the core contradiction: will encryption technology be abused by bad actors? Or is encryption technology a foundational tool for establishing trust and supporting legitimate business activities, serving law-abiding citizens? The essence of the question is a trade-off: do we want to completely eliminate the risks of cybercrime, or do we want online business platforms like Amazon to operate normally? The two things are deeply interconnected. After four years of extensive communication, relevant regulatory rules were eventually adjusted. It turned out that the world did not fall into chaos because of that. First, as Chris mentioned, the vast majority of applications of encryption technology are legitimate; more importantly, U.S. enterprises have firmly grasped the industry’s leadership. It’s not just Netscape; the global internet economy has long been led by U.S. companies.

Ethics for Public Officials and Market Regulation Should Be Discussed Separately

Robert: Let's continue discussing other critiques facing the bill. Another major point of contention is public ethics. Some argue that if the president and their family hold interests in crypto-related companies, the passage of the bill will allow supporters of the bill to profit from it. How do you respond to such critiques?

Chris: This is not my area of expertise, but as an ordinary citizen, I believe public officials should adhere to ethical standards. However, these rules should not only apply to the crypto industry. Stock trading and other financial asset fields should also establish ethical norms for public officials, which is a reasonable demand.

Secondly, even putting aside specific ethical provisions, the CLARITY Act will still impose numerous constraints on crypto market participants: mandatory disclosures of risks associated with crypto assets, position information, and the introduction of lock-up rules. All market participants, including public officials, will face stricter regulations.

Thirdly, politically speaking, the current situation is frustrating. Normally, ethics regulations for public officials and industry regulatory bills progress separately. However, the crypto industry has been subjected to a different set of evaluative standards. Even so, society and policymakers can rationally discuss public ethics rules applicable to all financial assets (including cryptocurrencies). I hope all parties can reach a consensus to push the bill forward. Our core goal is to achieve regulatory legislation for the crypto industry.

Marc: By the way, the constraints set by the bill for public officials using crypto assets are stricter than those for stock trading rules.

Chris: I’ll add that the public's current understanding of cryptocurrencies is mostly limited to trading speculation. Many overlook that with stablecoins and other applications, crypto technology is becoming a tool for daily use. If the industry continues to develop, related applications will further permeate the financial lives of ordinary people. When formulating regulatory rules, it is important to differentiate between two scenarios: one for asset speculation trading and another for everyday technological use. Public officials should have the opportunity to use cutting-edge technology.

Robert: In other words, the bill already contains provisions related to public official ethics, while the issue of ethical norms should be viewed separately from establishing the regulatory framework for the crypto market itself.

Chris: Objectively examining the current political situation, the existing draft of the bill has already incorporated ethical provisions. Relevant content is still in the negotiation phase. I look forward to all parties reaching a consensus. From our perspective, the primary goal is to end the prolonged gray area of regulation—this gray area has continually fostered industry competition to the bottom. While the CLARITY Act might not achieve perfection, it is far better than maintaining the status quo.

Stablecoin Interest Controversy: The Struggle Between Banks and the Crypto Industry

Robert: Let's revisit stablecoins. The regulatory scheme for stablecoins in the bill has attracted fierce debate, with significant opposition from the banking lobby, particularly from JPMorgan. Banks oppose the idea that stablecoin balances can earn interest; they worry that if consumers receive interest earnings from stablecoins, they will withdraw deposits from commercial banks, triggering deposit outflows.

Chris: The final text of the bill largely adopts the banking industry's demands by prohibiting interest accrual on stablecoin balances. The bill specifies that any product that is functionally equivalent to bank deposits is not allowed to pay interest. Of course, the rules allow some flexibility. For example, if a user uses a stablecoin wallet to make multiple purchases at Walmart each month, a reward mechanism can be set up as long as it does not fall under the balance interest earnings model.

Robert: Similar to credit card points or consumer reward mechanisms.

Chris: Exactly. If the rules were to tighten further, consumer rewards systems, like Starbucks points, would also be affected. This compromise solution emerged from prolonged negotiations. While this concession is not easy for the crypto industry, we still fully support the entire bill.

Robert: The public confrontation between Brian Armstrong and Jamie Dimon perfectly illustrates this struggle. However, JPMorgan has a large blockchain team and has already launched on-chain tokenized deposit services.

Chris: JPMorgan is vast. Many large banks are laying out their blockchain strategies. Once the CLARITY Act passes, a multitude of bank blockchain projects will be implemented on a large scale. Corporate exploration of new technologies is no longer confined to small experiments. We have been in long-term communication with many institutions. Several solutions have already entered pilot phases, and once regulatory certainty is established, they will be rolled out comprehensively. Institutions see tremendous opportunities.

The existing banking system has formed for complex historical reasons, which cannot be simply blamed on banks. The entire system is interwoven and intricate, with many underlying technologies already outdated. Blockchain provides the financial industry with a unified framework for innovation: various institutions can rely on blockchain to collaboratively advance financial infrastructure into the 21st century. Blockchain not only solves technical issues but also addresses collaboration obstacles.

When communicating with institutions, one can clearly feel that the banking industry generally views the outlook for this track positively, and JPMorgan is no exception. This is not just my assessment: Goldman Sachs CEO David Solomon has publicly expressed support for the CLARITY Act, and many large financial institutions like Fidelity and BlackRock have also publicly endorsed it and are laying out related businesses. Leading fintech companies like Stripe are also deeply involved. Once supporting regulations are in place, this technology can quickly become widely adopted.

Open Source Developer Responsibility: Overzealous Liability Will Devastate the Industry

Robert: Let's switch to another core dispute: the issue of software developer liability. Former White House cybersecurity official Carole House raised concerns, arguing that software developers need to bear more legal responsibility for the code they write. She believes that without liability mechanisms, it will set a dangerous precedent for other technological fields like artificial intelligence. Marc, you have long researched the AI sector; how do you view this perspective?

Marc: This line of thinking is essentially a death sentence for the industry. Software developers simply cannot predict how their code will be used in the future. Let’s step outside the software industry for an analogy: if a criminal checks into a hotel and uses the hotel to plan a crime, should the hotel operator bear complicity charges? If an automotive engineer designs a vehicle that is used in a robbery, is the engineer an accomplice to the robbery? If product developers are to be held liable for the subsequent actions of all their users, the entire sector will be obliterated.

Chris: I want to add that if you develop software with the intent of诱导 others to use the code for criminal activities, that is itself a criminal act, and that is not in dispute. The situation we are discussing is entirely different: developers create open-source software for positive uses, build AI models, construct underlying blockchain networks, and share them as open source. If the law requires open-source developers to take on unlimited civil and criminal liability, no one will want to continue developing open-source projects. Open-source teams are typically not well-funded, making it difficult to bear substantial litigation risks. Small teams starting in garages cannot shoulder unlimited responsibility. Such policies will stifle startups and destroy the open-source ecosystem.

Marc: The same contradictions appear in the discussions around AI regulation. The day strict liability rules are put in place will mark the demise of open-source technologies. Most open-source developers do not have revenue sources and cannot bear huge legal risks. When the open-source ecosystem collapses, academic research will also stagnate. Research in computer-related fields heavily relies on the open-source system. This, in turn, will heavily impact the entire field of computer science. The risks to this are high enough to be immeasurable; venture capital firms will cease investing in related startups. Both startups and large tech companies will be affected.

Practical Impacts of the CLARITY Act on Securities Law

Robert: The last frequently raised criticism is that some believe the bill will break through existing securities law frameworks. Marc, you just mentioned that for the past 90 years, securities law has supported the vigorous development of U.S. capital markets. Critics argue that once this bill passes, companies could directly tokenize their assets onto chains, thereby evading SEC oversight and the constraints of securities laws. How do you respond?

Chris: The text of the bill clearly states that once stocks are tokenized, they still fall under the category of securities, subject to SEC regulations with no room for exemption. The only distinction made is that the CLARITY Act explicitly states that blockchain-based native tokens like Bitcoin and Ethereum shall be regulated by either the SEC or the CFTC, depending on their developmental stages.

To clarify the logic: Bitcoin was initiated by Satoshi Nakamoto at its inception. Any new project's early stages inherently possess centralized characteristics, with the founding team exerting control and holding non-public information. According to the rules of the bill, new project tokens are initially subject to SEC oversight. New projects must adhere to lock-up rules, mandatory disclosure requirements, and all other securities regulatory requirements. As the project develops and the degree of decentralization reaches specified standards, transforming into networks like today's Bitcoin and Ethereum that do not have a single controlling entity and do not enable insider information manipulation, the regulatory authority switches to the CFTC, which regulates it as a commodity. This regulatory framework changes dynamically based on asset attributes. Even when entering a commodity regulatory system, related rules will still prevent various violations like market manipulation and forced liquidation.

Robert: Similar to commodities like gold, precious metals, crude oil, and wheat.

Chris: Exactly. The previous administration also expressed that Bitcoin and Ethereum have attained sufficient decentralization to be regulated as commodities. Over the past decade, both parties’ regulatory bodies and multiple judicial cases have accepted this logical framework.

The CLARITY Act merely codifies a long-established industry consensus into law, clearly defining the standards so that market participants no longer have to spend long years in litigation to confirm their regulatory status. Currently, anyone issuing new tokens has no uniform disclosure rules, lacks insider trading oversight, and does not have founder lock-up mechanisms. Once the bill is enacted, standards for risk isolation will be formally established. Before a project meets decentralization standards, the founding team and venture capital tokens must strictly follow the lock-up rules, which is a reasonable regulatory model. This well-structured regulatory framework based on risk levels allows consumers, investors, and all market participants to build trust and develop their businesses based on clear rules. A sustainably long-term industry cannot thrive without regulated oversight.

If the CLARITY Act Fails in Deliberations

Robert: We’ve gone through all the core issues at play; any divergence could lead to the bill's stagnation. If the CLARITY Act ultimately fails to pass, what consequences might that bring?

Chris: We will continue advocating for related legislation. The SEC, CFTC, Treasury, and other regulatory bodies can introduce some regulatory details within their administrative authority. However, rules created by administrative agencies are less stable than congressional legislation.

Long-term stable regulations protect consumer rights while also providing certainty for the industry. Building products often takes several years. If regulatory policies continue to fluctuate, entrepreneurs will find it difficult to make significant decisions to invest substantial time and money for long-term arrangements. Entrepreneurs are already facing countless challenges, and a continuously changing regulatory environment will only increase uncertainties. The biggest downside of the bill's failure lies in the prolonged period of regulatory ambiguity over the industry. Nevertheless, I remain optimistic that the bill will likely pass soon; if it faces obstacles, we will not stop pushing for legislation.

Maintaining America's Global Technological Leadership

Robert: Let’s raise the perspective to discuss the implications of the bill for the U.S. and its global technological leadership. Why is pushing the CLARITY Act crucial for national interests?

Marc: This legislation continues America’s long tradition of leading global technological innovation, which is critical for U.S. technological dominance. There are only two core questions: do we want our country to continue leading global technological innovation? The first question: after the emergence of new technologies, do we choose to embrace or reject their inherent value? The second question: once a technology is born, its developmental trajectory is difficult to reverse. Do we want the industry to develop in the United States, or do we willingly hand it over to other countries?

We firmly believe that regardless of political stance, all American citizens should support the U.S. maintaining its global technological leadership. This advantage can translate into tangible economic dividends, enhance personal wealth levels, and support various public expenditures. Technological leadership also profoundly impacts national security. The crypto industry rooting in the U.S. overall benefits law enforcement and national security. We have become so accustomed to the U.S. leading global technology that articulating this viewpoint even seems redundant; the rationale is quite straightforward. For the past century, the U.S. has fully enjoyed the dividends of technological leadership. In my view, we should strive to hold onto this edge and continue to lead for another century.

Robert: Whether policymakers will adopt these views and recognize the urgency of the situation, and who will establish standards first will yield long-term benefits, remains to be seen.

Thank you both.