Author: a16z crypto
Translation: Jiahuan, ChainCatcher
Cryptocurrency assets are no longer a niche market. Stablecoins handle trillions of dollars in transactions each year, and major banks and payment companies are developing on-chain businesses. However, the federal rules regulating these activities in the United States are still 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 Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), requiring project teams to disclose information and limiting insider behavior, while incorporating intermediaries such as trading platforms into a regulatory system similar to traditional financial markets. If the bill passes, blockchain systems will gain clear foundational 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 speakers are Marc Andreessen, co-founder of a16z, and Chris Dixon, founder of a16z crypto.
The two discussed why the crypto industry needs clear and lasting rules now, how the CLARITY Act will protect consumers, and how regulatory ambiguity can reward wrongdoers. The conversation also covered illicit financial activities, privacy, and government ethics; what might happen if the bill fails; why this relates to America's tech leadership; and why maintaining the status quo may represent the greatest risk.
Why does the crypto industry need rules now?
Since the release of the Bitcoin white paper, the crypto industry has undergone significant changes. It initially consisted mainly of amateur players and tech enthusiasts, but has now evolved into an industry with maturing infrastructure and increasing institutional participation.
This technology has grown into an industry. Stablecoins handle tens of trillions of dollars in transactions annually, comparable to the size of the Visa network. Large financial institutions, including banks, asset management companies, card organizations, and fintech firms, 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 settle on widely used blockchains in less than a second, at a cost of less than a cent.
For various reasons, U.S. regulation of crypto assets has been divided into two parts: stablecoins, and the market outside of stablecoins. The GENIUS Act, effective July 2025, establishes a federal framework for stablecoins, but the blockchain networks and trading markets that stablecoins depend on still lack a complete federal regulatory system. This is akin to regulating only mobile phones while leaving communication towers in legal gray areas.
“We do not want to take advantage, nor are we here to seek subsidies, protectionist policies, or other forms of support. We just want a long-term stable framework that allows everyone to conduct business responsibly. In my view, this is a completely natural demand on many levels.”——Marc Andreessen
Guidance issued by regulatory bodies can fill some gaps but cannot replace legislation. Changes in agency leadership or a new government can result in shifts in these guidelines. When companies decide whether to invest in projects that may take five or even ten years to yield results, they must know the rules, which regulator has jurisdiction, and whether products developed 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 the current crypto market is that crypto trading platforms are not subject to a complete federal system, while major securities and commodities exchanges such as the New York Stock Exchange and NASDAQ have long been under such oversight.
The New York Stock Exchange and NASDAQ have clear federal regulatory agencies. In contrast, crypto trading platforms lack a comprehensive system for market registration, supervision, auditing, information disclosure, trading monitoring, and customer asset protection. The CLARITY Act will provide a clear path for digital assets to transition from SEC oversight to CFTC oversight.
Crypto trading platforms registered federally will face auditing and financial control requirements. Platforms must properly safeguard customer assets, comply with anti-fraud and insider trading prohibitions, and provide operational information to regulators. Companies that refuse to meet these standards will be unable to operate legally in the U.S.
These requirements help prevent situations like the collapse of FTX. Allegations against FTX included transferring funds between affiliated entities, inadequate internal controls, and discrepancies between actual customer assets and the amounts claimed. Federal regulation cannot guarantee that fraud will never happen, but it can significantly raise the difficulty of concealing fraud and enable regulators to intervene before issues escalate into disasters.
“First, there must be a system in place. Businesses need to have risk controls, comply, and accept audits... We also need to use it to prevent disasters and avoid more failures like FTX.”——Marc Andreessen
The same principles apply to products sold under the name of “stablecoins.” Terra-Luna was marketed as a stable asset, but it had neither dollar reserves nor other stable reserve assets backing it. Under the stablecoin regulatory framework, compliant dollar stablecoins must be fully backed by corresponding reserves and be subject to auditing. The CLARITY Act will bring similar constraints to other parts of the crypto market.
How does the CLARITY Act prevent regulatory ambiguity 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 substantial resources in legal counsel, internal controls, audits, sanctions screening, and customer protection. These compliance costs are high, potentially slowing product development. Offshore competitors can avoid these expenses, replicate products, offer services at lower prices, and move faster, with their speed coming precisely from avoiding compliance.
The result is that uncertainty punishes responsible businesses while rewarding offshore competitors. Compliant U.S. trading platforms bear all the compliance costs, while non-compliant offshore platforms should not continue to serve U.S. users.
“Currently, it is extremely unclear which institutions are subject to which rules. 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 ultimately enables bad actors to benefit.”——Chris Dixon
The CLARITY Act will define the regulatory boundaries: which entities qualify as intermediaries, which rules apply to them, which bodies regulate them, and what the consequences of non-compliance will be. Any company that holds customer funds or assists in completing financial transactions must adhere to anti-money laundering, sanctions, and Treasury regulations similar to those applicable to payment service providers and financial institutions.
Clear rules benefit enterprises willing to meet standards; gray areas favor those who exploit loopholes.
How will the CLARITY Act strengthen sanctions enforcement?
Privacy does not equal secrecy. People often describe public blockchains as anonymous systems, but in practice, many public chains exhibit high transparency.
Transactions are permanently recorded on a public ledger. Wallet addresses do not directly reveal legal names, but investigators can trace the flow of funds and link these activities to trading platforms, accounts, devices, or other identity information. Even years later, records persist, enabling law enforcement to uncover evidence that was not available at the time of the transaction.
Some payment methods leave no public trace, but blockchain creates traceable paths. For this reason, some national security officials use the phrase “leaving a paper trail for future prosecutions” to describe crypto transactions: records left today may assist investigators in identifying and prosecuting criminals later.
“It applies the same anti-money laundering and Treasury rules that apply to other market intermediaries to crypto intermediaries.”——Chris Dixon
However, traceability and privacy are two different issues. A person should not be forced to disclose every medical expense or transfer to the world merely for using blockchain. The existing financial system also recognizes that ordinary people need privacy, while regulated entities must still fulfill their sanctions and anti-money laundering obligations.
Early debates around internet encryption provide a useful reference. Strong encryption was once seen 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 enabled secure banking, e-commerce, and confidential communication.
“Is it that because bad people use encryption for bad deeds, encryption itself is bad? Or is it that encryption is the foundation for building trust, engaging in business, and allowing law-abiding citizens both domestic and international to cooperate and conduct business—therefore it is inherently valuable?”——Marc Andreessen
Blockchain privacy faces the same boundary. Privacy protects lawful activities; concealment intended to evade the law still warrants legal prosecution.
How does the CLARITY Act handle stablecoin reward disputes while allowing banks to continue developing on-chain businesses?
Banks believe that stablecoin issuers and wallet service providers should not indirectly rebuild deposit accounts outside the banking system by paying interest on balances. They are concerned that consumers may shift deposits from banks to stablecoin products, thereby reducing the funds banks have available for lending.
The CLARITY Act addresses this concern: the bill prohibits paying interest on stablecoin balances and prohibits products that are functionally or economically equivalent to interest-bearing accounts.
However, the bill still allows rewards based on transaction behavior. Wallet service providers or retailers can reward customers who shop using stablecoins, just as credit cards offer points, and retailers run membership reward programs. The distinction is that the former rewards spending behavior, while the latter earns interest solely for holding a balance.
This compromise essentially meets the primary demands of banks without going so far as to ban ordinary reward programs. Many of the reward programs currently offered by card organizations, payment apps, and retailers also adopt a similar model.
It is worth noting that the banks making these demands are also adopting blockchain technology. Large financial institutions such as Goldman Sachs, Fidelity, BlackRock, Stripe, Wells Fargo, and JPMorgan have already developed or supported blockchain products.
“One of the changes that blockchain brings to finance is that it provides a unified framework that allows everyone to say, ‘Okay, let’s move into the 21st century together.’ Therefore, it addresses not only technological issues but also coordination issues.”——Chris Dixon
Banks see the same opportunities as the crypto industry: existing financial infrastructure is fragmented and difficult to transform. Blockchain offers a shared framework that enables financial institutions to reduce intermediary levels, settle assets on a common infrastructure, and collaboratively drive modernization without requiring each bank to separately rebuild interconnected systems.
Under what circumstances should software developers bear responsibility?
The CLARITY Act distinguishes between two actions: knowingly assisting others in committing crimes and publishing generic software. Developers who create tools for criminal purposes, market tools to criminals, or directly assist in illegal activities remain liable.
What the bill does not accept is another approach: holding developers indefinitely responsible for all unforeseeable and uncontrollable downstream uses. Open source code can be copied, modified, and deployed by individuals the developer has never encountered, used in scenarios the original author never envisioned. Requiring developers to be responsible for all these uses would make it nearly impossible to continue supporting the development or funding of open source software.
“This is simply unfeasible 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 seen just from the software perspective; this applies to any product. If I run a hotel and a criminal comes in and plans a crime, does that make me an accomplice?”——Marc Andreessen
Its implications extend beyond the crypto industry. Academic research, startups, venture capital, and open AI models all rely on open source software. A viable liability boundary should differentiate between subjective intention and actual participation: a person who knowingly assists with a crime should be held accountable; neutral tools abused by others later shouldn’t automatically make the tool developer liable.
How will the CLARITY Act handle securities law?
An asset does not automatically become a non-security just because it is put on a blockchain. Tokenized stocks remain stocks and continue to be regulated as securities by the SEC. Companies cannot evade disclosure, registration, and investor protection requirements merely by moving assets onto the blockchain or by calling them “tokens.”
“What the CLARITY Act does is simply write this into law and provide clear definitions. This way, everyone can accurately know their position without having to litigate every time to find 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 network develops.
In brief, the CLARITY Act establishes a risk-based framework. A new blockchain network typically starts with some centralized entity: a founder, company, or small team may control the network, possess information unknown to the public, and make decisions that affect token value. At this stage, the relevant assets will be regulated by the SEC and 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 meets the decentralization threshold set by the act, the nature of the relevant asset may align more closely with that of a commodity rather than a corporate security. At this point, regulatory responsibilities will transfer to the CFTC.
This does not mean the asset is no longer regulated. Commodity regulation likewise addresses abuses such as fraud, market manipulation, and cornering. The change in regulatory responsibilities is due to the change in the nature of the asset.
The bill will also introduce certain currently undefined limitations. While the network remains under centralized control, founders, venture capitalists, and other insiders may face longer lock-up periods and stricter disclosure obligations. These restrictions aim to prevent insiders from selling assets in the market before ordinary participants have equal information or the product has evolved into a fully decentralized network.
What happens if the CLARITY Act fails to pass?
Crypto regulation will not disappear as a result. The SEC, CFTC, the U.S. Treasury, and other agencies have been issuing regulatory guidance and using established authority to set rules within their respective jurisdictions; even if the bill does not pass, they are likely to continue doing so.
The problem is that with a change in government, regulatory interpretations of the law may subsequently change. Companies may invest several years developing products based on one set of expectations, only to suddenly face entirely different interpretations after an election or a leadership change in the agency.
This uncertainty affects not only investments but also consumer protection. A long-term framework can clarify the authorities of regulators while requiring businesses to complete registrations, disclose information, protect customer assets, and comply with market rules. Without legislation, these responsibilities will remain dispersed across different systems and are likely to provoke controversy at any time.
“If the rules on the ground keep changing, companies will naturally be less willing to invest a lot of time and money in development.”——Chris Dixon
This industry has already experienced years of tough enforcement and political hostility; a more likely outcome is not the disappearance of the industry, but companies continuing to move growth to other regions. Thus, the supervision that the U.S. can impose will actually decrease. U.S. regulators will find it harder to monitor offshore companies, and enforcement agencies will have a more difficult time reaching these firms; their willingness to build products around U.S. standards will also decrease.
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 the leaders, and whose rules will shape it.
For over a century, the U.S. has benefited from the advantage of major technologies originating and developing domestically. Technological leadership brings businesses, jobs, tax revenue, and expertise, providing economic resources for national priorities and resulting in security advantages.
“Regardless of political stance, every American citizen should wish for the U.S. to be a global technological leader.”——Marc Andreessen
The development history of crypto technology illustrates the stakes involved. When the U.S. restricted the export of strong encryption technology, foreign competitors did not halt their development; instead, they positioned their products outside the U.S., leading users to adopt these alternatives. It was only after restrictions were adjusted that American companies could participate in building a secure internet economy.
Blockchain technology presents the same dilemma. Future financial systems, technological standards, and leading firms will inevitably emerge somewhere. If they primarily develop overseas, the U.S. will lose both economic opportunities and regulatory influence.
The CLARITY Act will provide responsible businesses with a basis for conducting development under American law. a16z believes this will benefit consumers, law enforcement, and national security while also helping the U.S. to participate in establishing standards for the next generation of financial infrastructure.
Which 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 efforts in the U.S. Congress. Bipartisan lawmakers have worked to establish a federal framework for the digital asset market. The country's largest law enforcement organization, the Fraternal Order of Police, has also expressed support for the bill and refuted claims that “the bill would undermine 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 also comes from the financial sector. Goldman Sachs CEO David Solomon has already endorsed the CLARITY Act, and other financial institutions and fintech companies are developing blockchain products. a16z believes that support from diverse fields indicates a growing consensus that the U.S. needs clear, enforceable rules for the digital asset market.
When market rules are ambiguous, consumers cannot be certain what protections they enjoy; responsible businesses bear high compliance costs, while offshore competitors can circumvent these requirements. The CLARITY Act attempts to replace this state of uncertainty with a clear system.
What really needs to be compared is not the CLARITY Act with some hypothetical law, but the system post-passage versus the current state. a16z believes that as long as a clear path for responsible businesses is provided, the bill can enhance consumer protection, support law enforcement, and increase the likelihood of the next generation of financial technology developing in the U.S.
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