A16z Regulatory Recommendations Full Text: 10 Principles for World Leaders to Shape the Future of Web 3.0

Source: A16z Document

Compiled by: Baize Research Institute

Note: After Coinbase, FTX, and Binance successively proposed visions for crypto regulation, the major venture capital firm Andreessen Horowitz (A16z) has put forward its own recommendations for Web3.0 regulation.

Previously, the regulatory suggestions from Coinbase and FTX focused solely on U.S. regulations, while A16z's current regulatory suggestions align with Binance, targeting "world leaders" rather than just the U.S., advocating for a multi-stakeholder regulatory approach that includes governments, businesses, and civil society groups.

The following is the translation and translated images:

It's time to build a better internet.

The world deserves technology that can unleash opportunities for millions at the forefront of innovation and empower people to control their digital lives.

This is Web3.0, a set of technologies that includes digital assets, decentralized finance (DeFi), blockchain, smart contracts, tokens, and decentralized autonomous organizations (DAOs). These tools together enable new forms of human collaboration. They can break many deadlocks in life and help communities make better collective decisions on key issues such as how the web will evolve, what behaviors are allowed, and how economic benefits are distributed.

Web3.0 is the successor to the internet. Just as the internet changed the way people communicate and exchange information, Web3.0 is defined by the infrastructure that changes how value is transferred around the world. Following the internet, the emergence of Web3.0 is the largest global technology shift in history. The first generation of the internet, Web1.0, was incubated within governments and civil society before slowly reaching the world. Web 2.0 (today's large tech platforms) initially started as small companies in a few regions and quickly became the largest commercial arbiters in human history. Meanwhile, Web3.0 is gradually emerging from all corners of the world. The countries with the most participants in DeFi currently include the United States, Vietnam, Thailand, China, the United Kingdom, the Netherlands, and Ukraine; major adopters of cryptocurrency include India, Pakistan, Ukraine, Kenya, Nigeria, Venezuela, and Argentina. Venezuela is a representative case illustrating how the financial applications of cryptocurrency can fill the gaps in economically turbulent countries.

However, Web3.0 is not just about its financial origins, which is becoming increasingly evident worldwide. Leading Web3.0 applications, markets, and gaming studios are emerging globally, with many projects now built by globalized, decentralized teams operating as DAOs. The international developer community is growing at an unprecedented pace.

Web3.0 represents a profound shift in how individuals and communities use technology. Value creation and benefit distribution are being taken from centralized participants and given to community members distributed around the globe. Web3.0 has nearly limitless potential to realize new forms of ownership and collaboration.

However, realizing the potential of Web3.0 depends on decision-makers willing to lay the policy groundwork for unleashing innovation. Thoughtful regulation can establish a framework that allows innovation to benefit society while excluding real risks that could harm users.

Given the rapid growth of Web3.0, it is time for world leaders to get involved. Policymaking around Web 2.0 has been largely inadequate and slow. We should not repeat this mistake with Web3.0. Instead, decision-makers should consider how they want to use digital tools in an open society and how we should design and define the success of the next generation of the internet.

We believe that Web3.0 should be built around a set of clear goals. Specifically, the next generation of the web should be:

We believe that Web3.0 will become the cornerstone of a new financial and digital infrastructure that changes lives. In decentralized systems, value belongs to the platforms and their users rather than intermediaries. Because they are distributed, these systems are more resilient. Current Web3.0 projects have already demonstrated their immense potential.

Regardless of whether these projects succeed, innovation will continue to exist. These innovations include digital scarcity, trustless peer-to-peer collaboration and value exchange, auditability, and a mature digital economy.

Now is the time for the international community to work together to lay the groundwork for the global flourishing of Web3.0. This should be a task that decision-makers, civil society, and the private sector tackle together. To facilitate dialogue, this document outlines 10 key principles for how the international community should work together. While we are still in the early stages of Web3.0, the work must begin today.

1. Countries must have a clear vision for how to promote decentralized digital infrastructure

Because there are no single points of failure or control, Web3.0 infrastructure represents a significant improvement over existing fragile, centralized, and exclusive systems.

National technology strategies should include the critical societal benefits of blockchain technology, such as identity, property rights, and ownership, while enhancing financial inclusion and cybersecurity to protect the financial system. Personal data sovereignty and privacy should be the cornerstones of this Web3.0. From a design perspective, this will have the added benefit of enhancing compliance with existing laws: the auditability of Web3.0 combined with privacy solutions like zero-knowledge proofs is expected to significantly reduce compliance costs.

2. Embrace multi-stakeholder governance and regulation

When discussing the future of Web3.0, the public sector, private sector, and society each need to contribute uniquely in terms of expertise and perspectives. Therefore, decision-makers should explore regulatory frameworks overseen by multi-stakeholder organizations. A prominent example of such an organization is the Brazilian Internet Steering Committee, a government body established in 1995, managed by representatives from various sectors, which has successfully regulated Brazil's innovation and access to internet services for nearly three decades.

3. Create targeted, risk-calibrated oversight regimes for different Web3.0 activities

Web3.0 encompasses a wide range of human activities, such as artistic creation and curation, video games and collectible gaming items, data archiving and storage, publishing, lending, remittances, and more. The simplest way to encapsulate all this potential is to view Web3.0 as a whole. Treating all digital assets in the same way is akin to having a single legal regime that covers "stocks, real estate, cars, artworks, watches, and trading cards."

Distinguishing between protocols and applications is key. TCP/IP, HTTP, SMTP, and TLS/SSL are all protocols we interact with daily—the building blocks of the internet and fundamental applications like email and file transfer. The technical standards for these protocols are set by a few government agencies, non-profit organizations, private sector entities, and academic institutions. Importantly, no one controls these protocols. Non-profit organizations like the Internet Engineering Task Force, composed of volunteers, may establish specific standards, but the protocols themselves are open and collaboratively developed. Similarly, the Ethereum blockchain adopts an open model for Web3.0, with non-profit organizations funding the development of relevant technologies as part of the entire Web3.0 ecosystem.

Much of Web3.0 consists of open protocols, including those for storage, computation, lending, and value exchange. Like the internet protocols developed over the past six years, Web3.0 protocols thrive due to the strong communities supporting their development. The development of these protocols is open, distributed, and transparent, allowing them to resist malicious changes and remain neutral for the applications that use them. Regulation should leverage these benefits.

4. Promote innovation through the power of composability, open-source code, and open communities

Composability is a fundamental characteristic of Web3.0. Just as a set of Lego blocks can be assembled into many different shapes, anyone can use smart contracts and combine them in new and different ways. If someone has already innovated using a smart contract, you can modularly integrate that solution into your project instead of starting from scratch.

In Web3.0, open communities that anyone can participate in and contribute to enhance composability. This will create a further virtuous cycle, where contributors to successful projects will benefit from the increased value. Web3.0 can even unlock entirely new financing models for public goods. Decision-makers should strive to accelerate these innovation flywheels—such as by lowering barriers to entry and promoting data portability.

5. Broaden the economic benefits brought by the innovation economy

In Web 2.0, the vast majority of the economic benefits of the network flowed to the large companies operating the network. In Web3.0, network value belongs to the users, communities, and developers who actually create value, rather than intermediaries. It is crucial that individuals, especially those currently on the fringes of innovation, have the opportunity to create value on this new digital network and benefit from their efforts.

For example, distributed networks like Helium share economic benefits with individuals and communities hosting network infrastructure. Playing games, such as Axie Infinity, allows gamers to earn rewards and money from the games they play and is rapidly becoming a new frontier on a global scale. Similarly, the Web3.0 creator economy enables artists and musicians to ultimately receive the majority of the income from their works, rather than having their earnings captured by platforms and intermediaries.

6. Unlock the potential of DAOs

Corporations are the default model for organizing work activities in the private sector of the 20th century. DAOs may become the default mechanism for facilitating collaboration in the 21st century. DAOs enable individuals to collaborate, manage projects, manage assets, invest, and operate like traditional companies, but they can also provide higher levels of transparency, efficiency, and accountability than traditional corporate models. It is important to create a thriving space for this new collaborative mechanism, ensuring that DAOs have the same basic legal protections as traditional corporate structures.

7. Deploy Web3.0 to further achieve sustainable development goals

Web3.0 platforms have the potential to drive value in support of sustainable development goals, such as by enhancing the liquidity, integrity, and utility of carbon markets.

The payment-focused blockchain Celo can process 7 million transactions per ton of carbon and become about 8 times carbon negative through offsets. In contrast, one estimate indicates that the Visa network (which plans to achieve net-zero emissions by 2040) has reduced efficiency by 70%. Other Web3.0 projects, such as MakerDAO's "clean funds" proposal, aim to innovate at the forefront of clean energy financing. Therefore, Web3.0 should be used in novel ways to support global sustainable development goals.

Leading Web3.0 projects, in most cases, do not require massive energy consumption. The Ethereum blockchain, the most commonly used protocol in Web3.0, will soon adopt an energy-efficient proof-of-stake (PoS) consensus mechanism, reducing energy consumption by 1000 times.

At the same time, decision-makers should continue to work with the Bitcoin community to bring higher levels of sustainability and renewable energy use to the Bitcoin blockchain. Efforts are already underway: the Cambridge Centre for Alternative Finance found that 76% of Bitcoin miners are using renewable energy, and 39% of Bitcoin mining's total electricity consumption comes from renewable sources—twice that of the U.S. power grid.

8. Embrace the role of well-regulated stablecoins in financial inclusion and innovation

Over the past decade, fintech has achieved incredible success in improving consumer financial experiences. However, very little has been done to upgrade and improve core financial infrastructure, particularly in international payments, clearing, and settlement. This means that billions of people globally are excluded from existing systems due to high costs.

Decentralized finance (DeFi) technologies can now handle hundreds of billions of dollars in transactions daily, indicating a pathway to solving global 24/7 instant finance. Stablecoins are a fundamental component of DeFi, providing a key prerequisite: stable, programmable, native digital value representation.

To avoid falling behind competitors and provide more opportunities for financial inclusion, the international community should support well-regulated stablecoins by providing a clear and reasonable regulatory framework. Promoting the development of the stablecoin ecosystem will involve creating multiple regulatory approaches for different types of stablecoins.

Decision-makers should also seriously consider the compliance benefits of stablecoins. For example, stablecoins can enable auditing and disclosures far beyond what is currently available to consumers and regulators. When combined with appropriate privacy frameworks, they can also provide national security and law enforcement agencies with new ways to detect illegal activities and enforce sanctions.

9. Collaborate with other countries to coordinate standards and regulatory frameworks

International cooperation on regulatory frameworks is absolutely essential for realizing Web3.0. Decision-makers should also explore how to make Web3.0 a supporting technology for multilateral cooperation to address global challenges that have been difficult to solve so far.

For example, countries should work together to usher in a new era of cross-border payments. Today's cross-border bank transactions may involve five or more intermediary banks and can take days to complete due to incompatible regulatory requirements. This means that the average cost of sending a $200 remittance using traditional infrastructure is about 7%. However, cross-border payments using decentralized technology can be completed instantly at negligible costs.

Of course, international cooperation is also crucial for organizing bad actors (such as criminals) who exploit Web3.0. Web3.0 infrastructure (such as permanent distributed data storage) can further enhance security by disrupting ransomware attackers and other behaviors.

10. Provide clear and fair tax rules for the reporting of digital assets and leverage technological solutions for tax compliance

Facilitating tax compliance across the entire ecosystem aligns with the common interests of nations and the Web3.0 community. Tax authorities can smartly leverage the advantages of Web3.0 technology. If tax reporting obligations need to be expanded to capture Web3.0 activities, it should typically be the responsibility of participants who possess relevant information that collection agencies themselves cannot obtain. For public blockchains (public chains), no participant in the network has more information than tax authorities through appropriate blockchain analysis. At the same time, it is meaningless for tax authorities to openly view every transaction of anyone and should consider ways to enhance compliance through privacy—such as by building strong audit trails using zero-knowledge proofs.

A16z Conclusion:

Countries that embrace these principles will be better positioned to realize the potential of Web3.0 and respond more effectively to unexpected challenges on the path to user adoption at scale.