Author:a16z crypto
Translated by: Jiahua, ChainCatcher
Cryptographic assets are no longer a niche market. Stablecoins carry trillions of dollars in transactions each year, and major banks and payment companies are developing on-chain businesses. However, the U.S. federal rules regulating these activities are still incomplete.
The CLARITY Act aims to address this problem. The bill proposes to establish a federal regulatory framework for the cryptocurrency market, delineating the responsibilities between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), requiring project parties to disclose information and limiting insider behavior, while bringing intermediaries like trading platforms into a regulatory system similar to that of traditional financial markets. If the bill is passed, blockchain systems will receive clear basic rules, ending years of uncertainty that hinder innovation and expose consumers to risks.
This article is a Q&A published by a16z crypto based on a recent video discussion. The guests in the discussion were a16z co-founder Marc Andreessen and a16z crypto founder Chris Dixon.
The two discussed why the cryptocurrency industry needs clear and lasting rules now, how the CLARITY Act will protect consumers, and why regulatory ambiguities benefit wrongdoers. The discussion also touched on illicit financial activities, privacy, and government ethics; what would happen if the bill fails; why this concerns America's technological leadership; and why maintaining the status quo may be the biggest risk.
Why does the cryptocurrency industry need rules now?
Since the release of the Bitcoin whitepaper, the cryptocurrency industry has undergone significant changes. Initially, it was primarily used by amateur players and technology enthusiasts, but it has now evolved into a sector with gradually mature infrastructure and increasing institutional participation.
This technology has grown into an industry. Stablecoins process trillions of dollars in transactions annually, comparable in size to the Visa network. Large financial institutions such as banks, asset management firms, card organizations, 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 can now be settled in less than a second on widely used blockchains for less than a cent.
For various reasons, U.S. regulation of cryptographic assets has been broken 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 complete federal regulatory system. This is akin to regulating only mobile phones while leaving communication bases in a legal gray area.
“We are not looking to take advantage, nor are we seeking subsidies, protectionist policies, or any other forms of assistance. We only want a long-term stable framework that allows everyone to operate their business responsibly. To me, this is a completely natural request on many levels.” —Marc Andreessen
Guidelines issued by regulators can fill some gaps, but they cannot replace legislation. Changes in agency leadership or new governments can alter these guidelines. Companies deciding whether to invest in a business that may take five or even ten years to yield results must know what the rules are, which regulatory agency has jurisdiction, and whether products developed today will still be legal tomorrow.
The CLARITY Act will provide a long-term framework for enterprises to operate responsibly.
How will the CLARITY Act protect consumers?
The most fundamental consumer protection issue in the current cryptocurrency market is that cryptocurrency trading platforms are not subject to a complete federal system of constraints, whereas major securities and commodities trading venues like the New York Stock Exchange and Nasdaq are already under such regulatory oversight.
The New York Stock Exchange and Nasdaq have clear federal regulatory agencies. In contrast, cryptocurrency trading platforms lack a comprehensive system for registration, supervision, auditing, information disclosure, transaction monitoring, and customer asset protection that covers the entire market. The CLARITY Act will provide a clear path for digital assets to transition from SEC regulation to CFTC regulation.
Cryptocurrency trading platforms registered federally will face auditing and financial control requirements. Platforms must properly safeguard customer assets, adhere to anti-fraud and insider trading prohibitions, and provide operational information to regulatory agencies. Companies that refuse to meet these standards will not be able to operate legally in the United States.
These requirements will help prevent a scenario like the FTX collapse from occurring again. Allegations against FTX include transferring funds between associated entities, insufficient internal controls, and discrepancies between actual customer assets and the amounts claimed. 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 evolve into disasters.
“There must be a system first. Businesses need to have risk controls, be compliant, and accept audits… We need to use it to prevent disasters and avoid more occurrences like FTX.” —Marc Andreessen
The same principle applies to products sold under the name "stablecoin." Terra-Luna was marketed as a stable asset, but it had neither dollar reserves nor other stable reserve assets backing it. According to stablecoin regulatory frameworks, compliant dollar stablecoins must be fully backed by corresponding reserves and subject to auditing. The CLARITY Act will impose similar constraints on other parts of the cryptocurrency market.
How will the CLARITY Act prevent regulatory ambiguities from rewarding wrongdoers?
Ambiguous regulatory rules can lead to a race to the bottom.
A U.S. company that takes compliance seriously may need to invest a great deal of money in lawyers, internal controls, audits, sanctions screening, and consumer protection. The high costs of these efforts can also slow down product development. Offshore competitors, on the other hand, can avoid these expenditures, replicate products, offer services at lower prices, and move faster by not complying.
The result is that uncertainty punishes responsible enterprises while allowing offshore competitors to profit. Law-abiding U.S. trading platforms bear the entire compliance burden, while non-compliant offshore platforms continue to serve U.S. users without repercussions.
“Currently, which institutions are subject to which rules is very unclear. I realize that as long as there are gray areas in regulation, the market will generally move toward a race to the bottom… This ambiguity will ultimately benefit bad actors.” —Chris Dixon
The CLARITY Act will delineate regulatory boundaries: which companies fall under intermediary institutions, what rules apply to them, and which agencies regulate them, as well as the consequences of non-compliance. Any company that holds customer funds or assists in financial transactions will have to comply with anti-money laundering, sanctions, and Treasury regulations similar to those required of payment service providers and financial technology companies.
Clear rules benefit companies willing to meet standards; gray areas benefit those looking to exploit loopholes.
How will the CLARITY Act enhance sanctions enforcement?
Privacy does not equate to concealment. People often describe public blockchains as anonymous systems, but in practice, many public chains have high transparency.
Transactions are permanently recorded on public ledgers. Wallet addresses do not directly show legal names, but investigators can track the flow of funds and link those activities to trading platforms, accounts, devices, or other identity information. Years later, records still exist, allowing law enforcement to uncover evidence that was not available at the time of the transaction.
Some payment methods leave no public trace, while the blockchain leaves a traceable path. For this reason, some national security officials describe crypto transactions as leaving a trace for future prosecutions: records left today may help investigators identify and prosecute criminals later.
“It applies anti-money laundering and Treasury rules to crypto intermediaries just as they apply to other market intermediaries.” —Chris Dixon
But traceability and privacy are two different issues. A person should not be forced to disclose every medical expenditure or transfer to the world simply for using a blockchain. The existing financial system also recognizes that ordinary people need privacy while regulated institutions must fulfill their obligations regarding sanctions and anti-money laundering.
The early debates surrounding internet encryption technologies offer a useful reference. Strong encryption was once seen as a threat because criminals could also use it; in export controls, it was even grouped with military technology. But it is precisely encryption technology that enabled secure banking, e-commerce, and confidential communication.
“Does this mean that just because bad people can use encryption technology for bad things, encryption is bad? Or is encryption the basis for building trust, conducting business, and allowing law-abiding citizens domestically and internationally to cooperate and do business, therefore making it valuable in itself?” —Marc Andreessen
Blockchain privacy faces the same dividing line. Privacy protects legal activities; concealment for the purpose of evading the law remains subject to law enforcement scrutiny.
How does the CLARITY Act handle the controversy over stablecoin rewards while allowing banks to continue developing on-chain businesses?
Banks believe that stablecoin issuers and wallet service providers should not reconstruct deposit accounts outside the banking system by paying interest on balances. They are concerned that consumers might transfer deposits from banks to stablecoin products, thereby reducing the funding sources banks rely on for loans.
The CLARITY Act addresses these concerns: the bill prohibits paying interest on stablecoin balances and also prohibits products that are functionally or economically equivalent to interest-bearing accounts.
However, the bill still allows rewards based on transactional behavior. Wallet service providers or retailers can reward customers who use stablecoins for shopping, just as credit cards offer points or retailers operate membership reward programs. The distinction is that the former rewards consumers based on spending behavior, while the latter simply provides interest for holding a balance.
This compromise essentially satisfies the main demands of banks without reaching the point of prohibiting ordinary reward programs. Many of the reward programs currently offered by card organizations, payment applications, and retailers also adopt similar models.
It is worth noting that the banks making these demands are also adopting blockchain technology themselves. Major financial institutions such as Goldman Sachs, Fidelity, BlackRock, Stripe, Wells Fargo, and JPMorgan have already developed or supported blockchain products.
“One change that blockchain brings to the financial industry is that it provides a unified framework, allowing us to say: 'Okay, let’s all enter the 21st century together.' So, it addresses not only technical issues but also coordination issues.” —Chris Dixon
Banks see the same opportunities as the cryptocurrency industry: the existing financial infrastructure is fragmented and challenging to transform. Blockchain provides a shared framework that allows financial institutions to reduce intermediary layers, settle assets on a common infrastructure, and collaborate on modernization without requiring each bank to rebuild a connected system individually.
Under what circumstances do software developers need to be held accountable?
The CLARITY Act distinguishes between two types of behavior: knowingly assisting others in committing a crime and publishing generic software. Developers are still liable if they create tools for criminal purposes, market tools to criminals, or directly assist in illegal activities.
What the bill does not accept is another approach: holding developers liable for all unforeseen and uncontrollable downstream uses. Open-source code can be copied, modified, and deployed by individuals the developer has never seen, used in scenarios that the original author never envisioned. If developers are required to be responsible for all these uses, it would practically make continued development or funding of open-source software impossible.
“This is simply not feasible and would make software development impossible, because no developer can predict how software will be used in the future. It doesn’t even have to be viewed solely from a software perspective; it applies to any product. If I run a hotel and a criminal checks in and plans a crime in the hotel, do I then become a co-conspirator?” —Marc Andreessen
This impact is not limited to the cryptocurrency industry. Academic research, startups, venture capital, and open AI models all rely on open-source software. The viable liability boundary should be based on subjective intent and actual participation: a person should be held accountable when they knowingly assist in a crime; neutral tools misused by others should not automatically make tool developers liable.
How will the CLARITY Act address securities law?
A security does not automatically become a non-security just because it is placed on a blockchain. Tokenized stocks remain stocks and continue to fall under the jurisdiction of the SEC. Companies cannot evade information disclosure, registration, and investor protection requirements simply by moving assets onto a chain or labeling them as "tokens."
“What the CLARITY Act does is write this point into law and provide a clear definition. This way, everyone knows exactly where they stand without having to resort to litigation each time for an answer.” —Chris Dixon
The bill seeks to address another issue: how to regulate digital assets that are associated with blockchain networks and whose nature may change as the networks develop.
In brief, the CLARITY Act establishes a risk-based framework. A new blockchain network generally begins with some centralized entity: founders, companies, or small teams may control the network, possess information unknown to the public, and make decisions that affect the value of tokens. At this stage, the relevant assets will be regulated by the SEC, subject to similar requirements as securities, including information disclosure, limitations on insiders, 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 by the bill, the nature of the relevant assets may become more akin to commodities rather than corporate securities. At this point, regulatory responsibilities will shift to the CFTC.
This does not mean that the asset is then unregulated. Commodity regulation still addresses abuses such as fraud, market manipulation, and hoarding. Regulatory agencies change because of the shift in the nature of the asset itself.
The bill will also introduce some limitations that are currently not 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 information disclosure obligations. These restrictions are aimed at preventing insiders from selling assets in the market before ordinary participants have received equal information or before products have developed into sufficiently decentralized networks.
What will happen if the CLARITY Act fails to pass?
Cryptocurrency regulation will not disappear as a result. Agencies like the SEC, CFTC, and U.S. Treasury have been issuing regulatory guidelines and utilizing existing authorities to set rules within their respective jurisdictions; even without the bill, they are likely to continue doing so.
The issue is that after a change in government, the interpretation of the laws by regulatory agencies may also change. Companies may invest years in developing products based on certain expectations, only to face entirely different interpretations after an election or leadership change in the agency.
This uncertainty not only affects investments but also consumer protection. A long-term framework can clarify the powers of regulatory agencies, while requiring companies to register, disclose information, protect customer assets, and comply with market rules. Without legislation, these responsibilities remain scattered across different systems and may give rise to disputes at any time.
“If the rules beneath you are constantly changing, companies will naturally be even less inclined to invest significant time and money in development.” —Chris Dixon
The industry has already experienced years of tough law enforcement and political hostility; the more likely outcome is not the disappearance of the industry but rather that companies continue to shift their operations to other regions. Thus, the oversight that the U.S. can implement may actually diminish. U.S. regulators will face more difficulty monitoring offshore companies, and law enforcement will also find it harder to reach these firms; their willingness to build products that adhere to U.S. standards will also decline.
Why does the CLARITY Act continue the tradition of American technological leadership?
Once a technology is invented, it typically does not 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 emerging and developing domestically. Technological leadership brings businesses, jobs, tax revenue, and expertise, providing economic resources for the nation's key affairs and delivering security advantages.
“Regardless of political views, every American citizen should hope for the United States to be a global technology leader.” —Marc Andreessen
The development history of encryption technology illustrates the stakes involved. When the U.S. limited exports of strong encryption technology, foreign competitors did not cease development but instead placed products outside the U.S., and users turned to these products. After the restrictions were adjusted, U.S. companies could participate in building a secure internet economy.
Blockchain technology brings the same challenges. The future financial system, technology standards, and leading companies will arise somewhere. If they mainly develop overseas, the U.S. will simultaneously lose economic opportunities and regulatory influence.
The CLARITY Act will provide responsible companies with a basis 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 organizations support the CLARITY Act?
Supporters of the CLARITY Act include legislators, law enforcement agencies, financial institutions, and technology companies.
This legislation is the result of years of bipartisan efforts in the U.S. Congress. Bipartisan lawmakers have been working hard to establish a federal framework for the digital asset market. The Fraternal Order of Police, the largest law enforcement organization in the U.S., has also endorsed the bill and rebutted claims that “the bill would weaken sanctions or anti-money laundering enforcement.”
“The Fraternal Order of Police just announced its support for the CLARITY Act. It is the largest law enforcement organization in the U.S.” —Chris Dixon
Support is also coming from the financial industry. Goldman Sachs CEO David Solomon has publicly endorsed the CLARITY Act, while other financial institutions and fintech companies are developing blockchain products. a16z believes that support from different sectors indicates a growing consensus: the U.S. needs a clear and enforceable set of rules for the digital asset market.
When market rules are vague, consumers cannot determine what protections they enjoy; responsible companies bear high compliance costs, while offshore competitors can circumvent these requirements. The CLARITY Act seeks to replace this state of uncertainty with a clear system.
What really needs to be compared is not the CLARITY Act with another hypothetical law, but the system after the bill's passage with the current state. a16z believes that as long as a clear development path is provided for responsible companies, the bill can enhance consumer protection, support law enforcement, and increase the likelihood of next-generation financial technologies developing in the U.S.
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