a16z Crypto: Marc Andreessen and Chris Dixon interpret why the "CLARITY Act" is urgent

Author: a16z crypto

Compiled by: Jiahua, 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 regulations in the United States governing these activities remain incomplete.

The CLARITY Act aims to address this issue. The bill proposes to establish a federal regulatory framework for the cryptocurrency market, delineating the responsibilities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), requiring project teams to disclose information and restricting insider behavior, while bringing intermediaries like trading platforms under a regulatory system similar to that of 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 guests in the discussion are 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 ambiguity rewards wrongdoers. The conversation also touched on illegal financial activities, privacy, and government ethics; what would happen if the bill fails to pass; why this relates to America's technological leadership; and why maintaining the status quo may pose the greatest risk.

Why does the cryptocurrency industry need rules now?

Since the release of the Bitcoin white paper, the cryptocurrency industry has undergone significant changes. Initially used mainly by amateur players 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, comparable in scale to the Visa network. Major financial institutions such as banks, asset management companies, 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, costing less than a cent.

For various reasons, U.S. regulation of cryptocurrency 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 rely on still lack a complete federal regulatory system. This is akin to regulating only mobile phones while leaving communication base stations in a legal gray area.

"We are not looking to take advantage, nor are we seeking 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 perfectly natural request on many levels."
------Marc Andreessen

Guidance issued by regulatory agencies can fill some gaps but cannot replace legislation. Changes in agency leadership or the arrival of a new government can alter these guidelines. When companies decide whether to invest in a business that may take five or even ten years to yield results, they must know what the rules are, which regulatory agency has jurisdiction, and whether the products developed today will still be legal tomorrow.

The CLARITY Act will provide a long-term framework for companies 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, while major securities and commodity trading venues like the New York Stock Exchange and Nasdaq are already under such regulation.

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.

Federally registered cryptocurrency trading platforms will be subject to auditing and financial control requirements. Platforms must properly safeguard customer assets, comply with 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 U.S.

These requirements help prevent situations like the FTX collapse from happening again. Allegations against FTX included transferring funds between affiliated entities, insufficient internal controls, and discrepancies between the actual customer assets held and the amounts claimed. Federal regulation cannot guarantee that fraud will never occur, but it can significantly increase the difficulty of concealing fraud and allow regulators to intervene before problems escalate into disasters.

"There must first be a system in place. Companies need to have risk control, be compliant, and accept audits… We also need to use it to prevent disasters from happening and avoid more FTXs."
------Marc Andreessen

The same principles apply 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 the stablecoin regulatory framework, compliant dollar stablecoins must be fully backed by corresponding reserves and subject to audits. The CLARITY Act will bring similar constraints to other parts of the cryptocurrency 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 heavily in lawyers, internal controls, audits, sanctions screening, and customer protection. These compliance costs are high and can slow down product development. Offshore competitors, however, can avoid these expenses, replicate products, offer services at lower prices, and move faster, with their speed coming precisely from non-compliance.

As a result, uncertainty punishes responsible companies while allowing offshore competitors to profit. Compliant U.S. trading platforms bear all compliance costs, while non-compliant offshore platforms should not continue to provide services to U.S. users.

"Currently, it is very unclear which institutions are subject to which rules. I realize that as long as there are gray areas in regulation, the market will generally trend toward a race to the bottom… This ambiguity ultimately benefits bad actors."
------Chris Dixon

The CLARITY Act will delineate regulatory boundaries: which companies are considered intermediaries, what rules apply to them, which agency regulates them, and what the consequences of non-compliance will be. Any company that holds customer funds or assists in completing financial transactions must comply with anti-money laundering, sanctions, and Treasury regulations similar to those applicable to payment service providers and financial institutions.

Clear rules benefit companies willing to meet standards; gray areas favor those looking to exploit loopholes.

How will the CLARITY Act strengthen sanctions enforcement?

Privacy does not equate to concealment. People often refer to public blockchains as anonymous systems, but in practice, many public chains have high transparency.

Transactions are permanently recorded on a public ledger. Wallet addresses do not directly display legal names, but investigators can trace the flow of funds and link these activities to trading platforms, accounts, devices, or other identifying information. Years later, records still exist, so law enforcement may find evidence that was not available at the time of the transaction.

Some payment methods leave no public trace, but blockchains leave a traceable path. For this reason, some national security officials describe cryptocurrency transactions as "leaving a trail for future prosecution": records left today may help investigators identify and prosecute criminals in the future.

"It applies the anti-money laundering and Treasury rules that apply to other market intermediaries to cryptocurrency intermediaries as well."
------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 simply for using a blockchain. The existing financial system also recognizes that ordinary people need privacy while regulated institutions must still fulfill their obligations regarding sanctions and anti-money laundering.

The early debates around internet encryption technology provide a useful reference. Strong encryption technology was once viewed as a threat because criminals could also use it; in export controls, it was even classified alongside military technology. But it was encryption technology that made secure banking, e-commerce, and confidential communication possible.

"Is encryption bad because bad people can use it to do bad things? Or is encryption valuable because it establishes trust, facilitates business, and allows law-abiding citizens both domestically and internationally to cooperate and do business?"
------Marc Andreessen

Blockchain privacy faces the same boundary. Privacy protects legal activities; concealment intended to evade the law remains subject to enforcement scrutiny.

How does the CLARITY Act address stablecoin yield controversies 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 may transfer 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 also 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 use stablecoins for shopping, just as credit cards offer points and retailers operate membership reward programs. The difference is that the former rewards are based on consumption behavior, while the latter simply pays interest for holding a balance.

This compromise essentially meets the main demands of banks without going so far as to ban ordinary reward programs. Many 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 change that blockchain brings to the financial industry is that it provides a unified framework, allowing everyone to say, 'Okay, let's move into the 21st century together.' So, it addresses not just technical issues but also coordination issues."
------Chris Dixon

Banks see the same opportunities as the cryptocurrency industry: the existing financial infrastructure is fragmented and difficult to transform. Blockchain provides a shared framework that allows financial institutions to reduce intermediary layers, settle assets on a common infrastructure, and collaboratively advance modernization without requiring each bank to separately rebuild interconnected systems.

Under what circumstances do software developers need to bear responsibility?

The CLARITY Act distinguishes between two types of behavior: knowingly assisting others in committing crimes and publishing general software. Developers remain 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 people the developer has never met, used in scenarios the original author never envisioned. If developers are required to be responsible for all these uses, open-source software would be nearly impossible to continue developing or receive funding.

"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 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, does that make me an accomplice?"
------Marc Andreessen

Its impact is not limited to the cryptocurrency industry. Academic research, startups, venture capital, and open AI models all rely on open-source software. A viable line of liability should be based on subjective intent and actual participation: a person who knowingly assists in a crime should be held accountable; neutral tools misused by others later should not automatically make the tool developers liable.

How will the CLARITY Act handle securities law?

A security does not automatically become a non-security simply because it is placed on a blockchain. Tokenized stocks remain stocks and continue to be securities, still regulated by the SEC. Companies cannot evade information disclosure, registration, and investor protection requirements simply by moving assets onto the chain or calling them "tokens."

"What the CLARITY Act does is simply write this into law and provide clear definitions. This way, everyone can accurately know where they stand without having to litigate every time to find the answer."
------Chris Dixon

The bill aims to address another issue: how to regulate digital assets related to blockchain networks, which may change in nature as the networks evolve.

In brief, the CLARITY Act establishes a risk-based framework. A new blockchain network typically begins with a 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, subject to requirements similar to those for securities, including information disclosure, insider restrictions, 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 resemble commodities rather than corporate securities. At this point, regulatory responsibilities will shift to the CFTC.

This does not mean that the asset will no longer be regulated. Commodity regulation also addresses abuses such as fraud, market manipulation, and cornering. The reason regulatory responsibilities change is that the nature of the asset itself has changed.

The bill will also introduce some restrictions 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 aim to prevent insiders from selling assets to the market before ordinary participants have received equivalent information or before the product has developed into a sufficiently decentralized network.

What will happen if the CLARITY Act fails to pass?

Cryptocurrency regulation will not disappear as a result. The SEC, CFTC, U.S. Treasury, and other agencies have been issuing regulatory guidance and using existing authority to establish rules within their respective jurisdictions; if the bill does not pass, they will likely continue to do so.

The issue is that after a change in government, the interpretation of the law by regulatory agencies may also change. Companies may spend years developing products based on one set of expectations, only to suddenly face a completely different interpretation after an election or a change in agency leadership.

This uncertainty not only affects investment 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 will remain dispersed across different systems and could trigger disputes at any time.

"If the rules beneath our feet keep changing, companies will naturally be less willing to invest significant time and money in development."
------Chris Dixon

The industry has already experienced years of tough enforcement and political hostility; the more likely outcome is not the disappearance of the industry but rather companies continuing to move to other regions for development. This would reduce the oversight that the U.S. can implement. U.S. regulators would find it harder to oversee offshore companies, and law enforcement would also find it more difficult to reach these firms; their willingness to build products around U.S. standards would also decrease.

Why does the CLARITY Act continue the tradition of U.S. 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 being born and developed domestically. Technological leadership brings companies, jobs, tax revenue, and expertise, providing economic resources for national priorities and bringing security advantages.

"Regardless of political stance, every American citizen should hope that the U.S. becomes a global technology leader."
------Marc Andreessen

The history of cryptocurrency technology development illustrates the stakes involved. When the U.S. restricted the export of strong encryption technology, foreign competitors did not stop developing it; instead, they placed products outside the U.S., and users turned to those products. Only after restrictions were adjusted could U.S. companies participate in building a secure internet economy.

Blockchain technology presents the same issues. The future financial system, technological standards, and leading companies will emerge somewhere. If they primarily develop overseas, the U.S. will lose both 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 the 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 been working to establish a federal framework for the digital asset market. The largest law enforcement organization in the U.S., the Fraternal Order of Police, has also expressed support for the bill, countering claims that "the bill would weaken sanctions or anti-money laundering enforcement."

"The Fraternal Order of Police has 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 industry. Goldman Sachs CEO David Solomon has endorsed the CLARITY Act, and other financial institutions and fintech companies are developing blockchain products. a16z believes that support from various sectors indicates a growing consensus that the U.S. needs a clear and enforceable set of rules for the digital asset market.

When market rules are unclear, consumers cannot determine what protections they have; responsible companies bear high compliance costs while offshore competitors can bypass these requirements. The CLARITY Act seeks to replace this state of uncertainty with a clear system.

What truly needs to be compared is not the CLARITY Act with another hypothetical law, but the system after the bill passes 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 the next generation of financial technology developing in the U.S.