Crypto Loopholes: A16z Says Congress is Coding Like It’s 1999 😱

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Well, butter my blockchain, Andreessen Horowitz (a16z) has decided to wade into the crypto regulation swamp, and let’s just say they’ve brought a machete. 🗡️ In a letter that’s more dramatic than a soap opera cliffhanger, the venture capital bigwigs are urging U.S. lawmakers to rethink their draft crypto rules. Apparently, the current proposal has more loopholes than a Swiss cheese convention, and a16z is not having it. 🧀

This is a disaster waiting to happen. 🚨

A16z Wants a “Digital Commodity” Model—Because Simplicity is Sexy

According to a16z, the current approach is like trying to fix a leaky faucet with a sledgehammer. 🛠️ It doesn’t resolve the core issues facing crypto markets and is incompatible with the Howey test, the legal benchmark for defining securities. In short, it’s a hot mess. 🌋

Instead, they’re pushing for the CLARITY Act’s “digital commodity” framework, which they claim will provide greater certainty while keeping things simple. Because, let’s face it, no one likes a complicated regulatory spaghetti bowl. 🍝

And don’t even get them started on the Howey test. “The Howey test remains a critical component of U.S. securities law,” they declared, as if it were the eleventh commandment. They want it to stay put, with a modernized application for ancillary assets. Mess with it at your peril. ⚖️

Proposed changes to the Howey test? “Unnecessary—and dangerous,” they said. “It seeks to rewrite Howey in a way that departs from settled law and undermines investor protections.” Yikes. That’s like trying to improve the Mona Lisa by adding a mustache. 🎨

“These changes are not merely problematic—they are incompatible with the broader architecture of U.S. securities law.”

Insider Sales: The Crypto Equivalent of Cutting in Line

A16z also pointed out a loophole so big you could drive a Bitcoin through it. 🚗 Applying securities law to primary transactions and commodity regulations for secondary transactions allows issuers to sell ancillary assets to insiders under exemptions, then resell them in the public market without securities regulations. It’s like a game of regulatory Whac-A-Mole. 🕳️

Their solution? Require projects to achieve decentralization by eliminating mechanisms of control. “This can close loopholes that would otherwise arise,” they said, presumably while nodding sagely. 🧙♂️

This would also prevent insider enrichment at the expense of public investors—because nothing says “fairness” like not letting the rich get richer. 💰

“Once control is relinquished and the project is decentralized, those restrictions should fall away, as the asset’s trust dependencies now resemble those of a commodity.”

A Control-Based Decentralization Framework: Because Who Doesn’t Love a Good Framework?

A16z wants regulators to adopt a control-based decentralization framework, which they say is the “appropriate way to evaluate the evolution of an ancillary asset’s risk profile.” In other words, it’s all about who’s holding the reins. 🐎

“This approach should be focused on whether any party retains unilateral authority—operational, economic, or governance—over the blockchain system,” they explained. And yes, this should be considered when applying the Howey test. Because, you know, consistency is key. 🔑

“Howey should not be abandoned. Instead, Congress should codify the principles underlying Howey for assets under a control-based decentralization framework.”

Protect the Plumbers, Not the Pipes

Finally, a16z took a swipe at the SEC’s past focus on the “efforts of others” aspect of the Howey test, which they say has created “significant perverse incentives.” 🤡 Lower transparency, undisclosed risks, and stalled innovation? Sounds like a recipe for disaster. 🍳

They argued that being involved with the technology at the basis of crypto shouldn’t infringe on securities law. Running consensus algorithms, mining, staking, and executing smart contracts? That’s just the plumbing. Don’t regulate the plumbers, regulate the pipes. 🚰

“Legislation should clarify that core technology functions necessary for the operation of decentralized blockchain systems do not, in and of themselves, constitute regulated financial activity under U.S. securities or commodities laws,” they concluded. Mic drop. 🎤

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2025-08-01 14:42