TLDR:
A16z urges U.S. Treasury to clarify stablecoin regulations for innovation.
A16z backs GENIUS Act but calls for decentralized stablecoin exemptions.
A16z highlights need for distinct treatment of decentralized stablecoins.
A16z proposes decentralized digital identity to combat illicit finance.
A16z emphasizes clear stablecoin rules to foster DeFi sector growth.
A16z Crypto, the crypto-focused arm of venture capital firm Andreessen Horowitz, has urged U.S. Treasury officials to clarify critical aspects of stablecoin regulation. The firm emphasized the need to distinguish decentralized stablecoins from traditional payment stablecoins in the newly proposed rules under the GENIUS Act. A16z raised concerns that the lack of clear definitions could inadvertently stifle innovation within the decentralized finance (DeFi) sector.
The firm expressed its support for the GENIUS Act, praising the legislation as a step forward in addressing consumer protection and financial stability within the stablecoin market. However, A16z warned that the law’s current framework could unintentionally subject decentralized stablecoins to unnecessary oversight. To avoid this, A16z requested that the Treasury provide specific guidance on how decentralized stablecoins should be treated under the GENIUS Act.
Decentralized Stablecoins and the GENIUS Act
The GENIUS Act, passed earlier this year, aims to regulate stablecoins, focusing on consumer protection, illicit finance and financial stability. The law creates a framework for “payment stablecoins” but leaves room for ambiguity in how decentralized stablecoins fit into the regulatory structure. A16z pointed to examples like Ethereum-backed LUSD, which are issued via autonomous smart contracts without central control, as decentralized stablecoins that should be exempt from certain regulations.
A16z argued that since these decentralized assets are not issued by a central entity, they should not fall under Section 3(a) of the GENIUS Act. Section 3(a) limits stablecoin issuance in the U.S. to approved issuers, which could lead to unnecessary restrictions on decentralized stablecoins. The firm called on the Treasury to make it clear that these assets, which operate without a “person” issuing them, should remain outside the scope of the law’s restrictions.
The firm also recommended adopting a control-based decentralization framework from the 2025 Digital Asset Market Clarity Act. This framework would exempt certain activities, such as transaction validation and non-custodial wallet development, from intermediary regulations. By clarifying the scope of decentralized stablecoin regulation, A16z believes the Treasury can create a more favorable environment for innovation in the sector.
Decentralized Digital Identity as a Solution to Illicit Finance
A16z also responded to the U.S. Treasury’s call for innovative approaches to combat illicit finance. The firm suggested that decentralized digital identity systems could offer a viable solution. These systems, built with privacy-preserving cryptography, would allow individuals to control their personal data while reducing the risks of cyberattacks and surveillance.
A16z highlighted that decentralized digital identity could enhance national security and protect civil liberties. By using technologies like zero-knowledge proofs and multi-party computation, these systems can provide secure identity verification without exposing sensitive personal information. Furthermore, the firm argued that these identity systems could help combat fraud, improve the detection of illicit activities, and lower operational costs for institutions.
A16z’s call for clarity in stablecoin regulation and its promotion of decentralized digital identity underscore the firm’s commitment to fostering innovation in the digital asset space. The firm believes that a balanced regulatory approach will help protect consumers and maintain the growth potential of decentralized finance.
