In a recent episode of "a16z crypto Podcast," a16z co-founder Marc Andreessen and a16z crypto co-founder Chris Dixon were featured guests. They joined host Robert Hackett to discuss the "CLARITY Act." This market structure bill is currently under Senate review, and whether the bill will pass or stall will have far-reaching implications. The following is a transcript of their conversation, which has been edited for length and clarity. You can watch the full episode for the complete discussion.
Robert: The U.S. Congress is considering a once-in-a-century market structure legislation that could determine where the future of the financial system and internet technology converge. The bill, which received bipartisan support in the House of Representatives last year, has since been advancing through the Senate.
Now, there have been many debates and obstacles surrounding this technology, as we will discuss in detail shortly. But before that, let's start from a macro perspective and talk about why regulatory clarity is so crucial, what costs maintaining the status quo entails, and what this bill means for America and for all those who may use this technology in the future.
Marc, let's hear your thoughts first. In January 2014, you wrote an op-ed in The New York Times titled "Why Bitcoin Matters." The landscape was very different then compared to now, and it was quite a controversial view at that time. The so-called crypto industry looked nothing like it does today. What changes have occurred in the industry from that time to now?
Marc: Sure. 2014 seems like a distant past now, with The New York Times even publishing positive coverage of the crypto industry back then, as if it were centuries ago. I still take pride in that article, as many of the points made are still valid today. The piece was born amidst the dawn of a macro tech wave five years ago, and back then, believing in the long-term value of this technology itself was quite disruptive.
A large population still needs to understand, accept, and participate, and this remains true to this day. Looking back, the only adjustment needed in the article is that everywhere "Bitcoin" was mentioned, it can now be replaced with "cryptocurrency." The vision then was that Bitcoin could further evolve, while enabling the tokenization of real-world assets and applications of virtual assets like NFTs. Of course, this roadmap did not unfold as expected. Subsequent markets saw the emergence of new blockchains and crypto platforms, eventually leading to the birth of Ethereum and various public chains. What started as a single technology has progressively grown into a full-fledged industry. Bitcoin itself has seen tremendous success over these years, but what is more noteworthy is the full-scale innovation across the entire track.
Robert: I have to admit, many of the viewpoints in that article still hold true to this day. One particular prediction stood out to me: "In the coming years, a large number of dramatic stories will unfold around this new technology." I must say, your accurate prediction of the subsequent developments impressed me.
Chris, you have also witnessed the industry's journey from the early days to the present. What changes have taken place since the early stages?2023
Chris: Early industry participants were mostly just enthusiasts, passionate supporters, belonging to a niche subculture. At that time, the main technology was only Bitcoin, and as Marc mentioned, early emerging blockchains universally faced a series of challenges such as performance and scalability. Fast forward to the present day, almost every day we see major banks and fintech companies announcing the launch of platforms built on stablecoins, tokenized stocks, and various digital assets.
A simple explanation of stablecoins: It is very similar to Marc's Bitcoin vision described years ago, essentially a blockchain-based digital dollar. Today, the trading volume of stablecoins is comparable to the Visa network, with quarterly transaction volumes reaching trillions of dollars. With stablecoins, you can now open WhatsApp and transfer money to any region in the world almost cost-free, with the user experience feeling like sending a text message. This is how fund circulation should be. Marc, as an internet pioneer, should deeply appreciate this: early internet adopters originally expected such scenarios to arrive earlier. Hindered by multiple factors, the vision was delayed in materializing. However, now, the dream of money flowing as freely as digital information has finally become a reality. The entire industry is maturing, and the underlying infrastructure technology has also been significantly improved. Just three years ago, completing such a transfer might have cost several dollars or even tens of dollars in fees. Today, on mainstream blockchains like Solana and Ethereum, transaction confirmation takes less than a second, and the cost of transfers is less than a dollar.
Why the Crypto Industry Urgently Needs Regulatory Rules
Robert: You mentioned earlier that the trading volume of stablecoins now rivals that of the Visa network, with trillions of dollars flowing in this system. BlackRock, JPMorgan Chase, Visa, Fidelity, Mastercard, and many other major financial institutions have joined the game. The list can go on, with all major institutions strategically positioning their businesses around this technology. However, as the industry has developed to this day, there has been a long-standing lack of clear regulatory frameworks and policy guidance. Why do we now urgently need to establish regulatory rules?
Chris: Multiple reasons have led to the regulatory issue in the crypto space being divided into two main areas: stablecoins and the rest of the digital asset market. Last year, the " " was passed by Congress and signed into law by the President, establishing a comprehensive regulatory framework for stablecoins. Coincidentally, stablecoins happen to be the fastest-growing track over the past year. With clear regulatory boundaries, builders can have a stable outlook.
For the average American consumer, if you use USDC or any other stablecoin compliant with the GENIUS Act, you can be assured that behind each stablecoin, there is a corresponding one-to-one reserve held in a bank. This provides consumers with confidence and asset protection. For institutions, banks, and companies like Stripe and PayPal looking to enter the market, predictable rules and a comprehensive regulatory framework are necessary to ensure that the business built today will not only be compliant next year but will also be able to operate smoothly for the next decade. Market participants need certainty.
However, a major unresolved issue at the moment is that stablecoins operate on blockchain networks, yet neither the blockchain sector itself nor the wider digital asset space has a complete set of federal regulatory rules. This is why the deliberation of the CLARITY Act in the Senate is of significant importance. To draw a parallel: it's like enacting regulations for cell phones but lacking relevant rules for cell towers. One half of the tech race track has a regulatory system, while the other half remains in uncertainty. Despite the unclear environment, entrepreneurs are still building and striving to navigate the compliance boundaries. There are two paths for policy-making. Regulatory bodies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have already issued some guidance. However, as you mentioned in your opening example of the history of the Internet, a mature industry's long-term development relies on formal legislation. Therefore, we believe that legislation is imperative, which is why the CLARITY Act is so crucial.
Robert: Currently, it's not entirely without rules. As you said, stablecoins have relevant legislative norms, but they only cover a small portion of the market, while a vast track remains in a regulatory vacuum. Marc, why does the entire crypto race track need to establish regulatory rules, and why can't the timing be delayed any further?
Marc: The U.S. financial system has gone through similar experiences multiple times. The most classic example is the Securities Act, which led to the creation of the SEC and established a regulatory system for the stock market. We are not asking for policy subsidies, trade protection, or special support. We simply hope to have a long-term stable regulatory framework that allows market participants to conduct business compliantly. In many ways, this is a rightful demand.
Chris: For example, currently, the U.S. still lacks a federal regulatory body for crypto exchanges. The New York Stock Exchange, Nasdaq, all operate under federal regulatory frameworks. A significant part of the CLARITY Act is to fill this gap, granting the SEC and CFTC regulatory authority, establishing an information disclosure system, anti-fraud rules, insider trading regulations, and creating a regulatory framework consistent with other traditional financial markets, as Marc just mentioned mature market rules. The FTX incident is the best evidence; this exchange platform lacked standardized audit supervision, leading to a crisis. Once crypto exchanges complete federal registration, they will need to undergo standardized audits. The Act empowers federal regulatory agencies with complete enforcement authority. Any platform that fails to meet compliance requirements will not be allowed to operate in the U.S. The details of the Act are intricate, and the legislation has maintained bipartisan cooperation throughout. For the past seven years, many of us have been continuously pushing for the enactment of the CLARITY Act; the House has passed the text of the Act for over a year now, and the Senate has been deliberating adjustments for a whole year. The financial industry has a precedent for regulation, and the Act will transfer common regulatory principles from mature industries to the crypto race track. The Act clearly delineates applicable entities; crypto intermediaries must comply with anti-money laundering regulations and Treasury Department regulatory rules consistent with traditional financial institutions. The largest law enforcement agency in the U.S., the Fraternal Order of Police, recently publicly expressed support for the CLARITY Act. Some opponents claim that the Act lacks comprehensive enforcement provisions, but this is not the case.
Gray Regulatory Area Facilitates Illegal Financial Activities
Robert: Let's discuss a key topic that is currently being debated by all parties, and illegal financial activities are one of the focal points of the discussion.
Chris: The current legal and regulatory boundaries are extremely ambiguous. Through long-term observation, when there is a gray area in regulation, the industry is highly susceptible to engaging in "race to the bottom" behavior.
I have long served as a board member of Coinbase, with Marc still on the Coinbase board. Coinbase is a local company that places a high emphasis on regulatory compliance. However, compliance requires a huge investment cost and tends to slow down product iteration speed. Every year, numerous emerging overseas exchanges emerge, saving a significant amount on compliance costs and seizing market share through lower fees and faster product updates. Regulatory ambiguity ultimately benefits speculators and bad actors. Robust regulation (the "CLARITY Act" is a step in this direction) can clearly define the regulatory scope.
For example, under the "CLARITY Act," if you are a financial intermediary, similar to Coinbase, or any company that holds user funds, you must comply with the exact same regulations as companies like Stripe and PayPal. The bill clearly defines this requirement. As I mentioned, multiple law enforcement agencies have also publicly supported the bill.
Will the "CLARITY Act" Foster Sanctions Evasion? Privacy Is Not Anonymity
Robert: Marc, there is a criticism suggesting that this bill will help market participants evade sanctions. How do you view this?
Marc: Most national security professionals I have engaged with do not agree with this viewpoint. On-chain transactions leave a complete trace, which sharply contrasts with many current terrorist financing models. Even individuals within the industry claim that cryptocurrency is inherently anonymous, and transactions cannot be traced. Essentially, this perspective stems from a lack of understanding of the technology.
Chris: On the contrary, many teams are currently investing a significant amount of development resources to build privacy-focused blockchains because most public blockchain transactions are entirely transparent. We believe that privacy features have legitimate value but are by no means intended for illicit activities. Imagine if you needed to pay for medical or financial services; you certainly would not want everyone to see that transaction. The traditional financial system also has privacy needs, which is a very reasonable demand.
With the implementation of the "GENIUS Act" and the widespread adoption of US dollar stablecoins, the Washington policy circle has started discussing privacy issues. We agree with this development. This scene reminds us of the early days of the internet. Marc, was it your team that introduced the SSL protocol back then?
Marc: Exactly.
Chris: To give a brief history lesson to those unfamiliar, HTTPS technology originated from Netscape. At that time, many questioned why ordinary people needed encrypted communication. While some criminals might exploit encryption, over time it became clear that encryption was essential. 99.9% of use cases are legitimate, with everyday scenarios like regular people logging into online banking relying on encryption.
Your team even testified before Congress back then.
Marc: That tug-of-war lasted four years and mirrors the current situation closely. When we launched the Netscape browser, it was the first widely adopted consumer software with a public-key encryption system. During that era, encryption technology was classified as a munition under the International Traffic in Arms Regulations (ITAR). This meant that encryption fell under the same control standards as the Tomahawk missile, placing the Netscape browser in the same restricted category.
Therefore, we could only sell versions with strong encryption within the U.S.; versions sold overseas had to deliberately weaken encryption. As you can imagine, international consumers were not pleased. The product packaging clearly stated, "Weak Encryption Strength, Do Not Trust," leading to a significant drop in international sales.
International competitors promptly seized the opportunity, copied the browser, and included a complete encryption solution. Overseas users abandoned our product in favor of the foreign competition. Back then, we young folks went to Washington to lobby, attempting to clarify our stance, but officials were often skeptical.
The debate ultimately boiled down to a core contradiction: Would encryption be abused by bad actors? Or is encryption a foundational tool for building trust and supporting legitimate business activities, serving law-abiding citizens? The essence of the issue lay in balancing whether we wanted to completely eradicate the risk of cybercrime or enable online platforms like Amazon to operate smoothly. These two goals were deeply intertwined. After a lengthy four-year educational campaign, the related regulatory rules eventually saw adjustments. The fact proved that the world did not descend into chaos. First, as Chris mentioned, the vast majority of encryption technology applications are legitimate; more importantly, U.S. companies leveraged this to firmly establish industry dominance. It wasn't just Netscape; American companies have long led the global internet economy.
Ethical Standards for Public Officials Should Be Discussed Separately from Market Regulation
Robert: Let's continue discussing other challenges the bill faces. Another major controversy is around public ethics. Some argue that the President and their family hold stakes in encryption-related companies, and the bill's enactment would benefit supporters financially. How do you respond to such criticisms?
Chris: This is not my area of expertise, but as an ordinary citizen, I believe that public officials should adhere to ethical standards. However, these rules should not only target the crypto industry. Stock trading and other financial asset sectors should also establish ethical guidelines for public officials; this is a reasonable demand.
Secondly, even disregarding specific ethical clauses, the CLARITY Act would still impose significant constraints on crypto market participants: crypto asset risk, mandatory disclosure of holdings, and the introduction of lock-up rules. All market participants, including public officials, will face more stringent regulation.
Thirdly, from a political perspective, the current situation is frustrating. Normally, public ethics regulations and industry regulatory bills would be advanced separately. However, the crypto industry is being judged by a set of different standards. Nevertheless, the entire society and policymakers can thoroughly discuss rational public ethics rules applicable to all financial assets (including cryptocurrency). I hope all parties can reach a consensus and drive the legislation forward. Our core objective is to complete cryptocurrency industry regulatory legislation.
Marc: On a side note, the standards set by the Act for public officials using crypto assets are stricter than those related to stock trading.
Chris: Let me add one point: the general public's current understanding of cryptocurrency mostly revolves around speculative trading. Many people overlook the applications based on stablecoins, and cryptocurrency technology is transforming into a tool for everyday use. If the industry continues to develop, these applications will further penetrate the financial lives of ordinary people. When formulating regulatory rules, it is necessary to distinguish between two scenarios: one involving asset speculation trading and the other involving everyday technical use. Public officials should have the opportunity to use cutting-edge technology.
Robert: In other words, the Act already includes clauses related to public ethics, and the topics of ethical standards and building the crypto market regulatory framework itself should be viewed differently.
Chris: Taking an objective view of the current political situation, ethical-related clauses have already been included in the current draft of the Act. The respective contents are still in the negotiation stage. I look forward to all parties reaching a consensus. From our perspective, the most important goal is to end the years-long regulatory gray area—which has continuously fueled industry bottom-line competition. While the CLARITY Act may not be perfect, it is far better than maintaining the status quo.
Stablecoin Interest Controversy: The Battle Between Banks and the Crypto Industry
Robert: Let's talk about stablecoins again. The regulatory proposal for stablecoins in the Act has sparked intense controversy, with strong opposition from the banking industry lobbying groups, notably highlighted by JPMorgan. Banks are against stablecoin balances earning interest. They are concerned that if consumers can earn interest on stablecoins, it will lead to deposit outflows from commercial banks.
Chris: The final text of the bill basically adopts the banking industry's demands, prohibiting stablecoin balances from earning interest directly. The bill defines that any product that is equivalent to a bank deposit in function and economic attributes is not allowed to earn interest. Of course, there is some flexibility in the rules. For example, if a user uses a stablecoin wallet to make several purchases at Walmart each month, a consumption reward mechanism can be set up, as long as it does not fall under the interest-bearing balance model, it complies with the regulation.
Robert: Similar to credit card points and consumption reward mechanisms.
Chris: Exactly. If the rules were to be tightened further, consumer reward systems like Starbucks points would also be affected. It took many parties a long negotiation to come up with this compromise. For the crypto industry, this compromise was not easy, but we still fully support the entire bill.
Robert: The public confrontation between Brian Armstrong and Jamie Dimon perfectly illustrates this negotiation. However, JPMorgan Chase has a large in-house blockchain team and has already launched on-chain tokenized deposit services.
Chris: JPMorgan Chase is massive. Many large banks are pursuing blockchain initiatives. Once the "CLARITY Act" is passed, a large number of bank blockchain projects will be massively implemented. Corporate exploration of new technologies has long ceased to be limited to small-scale experiments. We have been in long-term communication with numerous institutions. Many solutions have already entered the pilot phase, and after regulatory certainty is established, they will be fully rolled out. Institutions generally see enormous opportunities.
The existing banking system has complex historical reasons for its formation, and it cannot be simply blamed on banks. The whole system is intricate, with a large amount of outdated underlying technology. Blockchain happens to provide the financial industry with a unified framework for innovation: institutions can rely on blockchain to jointly advance financial infrastructure into the 21st century. Blockchain not only solves technical challenges but also removes obstacles to multi-party collaboration.
When communicating with institutions, it is evident that the banking industry generally has a positive outlook on the track, with JPMorgan Chase being no exception. It's not just me making this judgment: Goldman Sachs CEO David Solomon publicly expressed support for the "CLARITY Act," and large financial institutions such as Fidelity and BlackRock have also publicly supported it, and are all expanding into related businesses. Top fintech companies like Stripe are also deeply involved. As long as regulatory measures are in place, this technology will soon become widespread.
Open Source Developer Responsibility: Overly Heavy Accountability Will Seriously Impact the Industry
Robert: Let's shift to another core controversy, the issue of defining software developer responsibility. Former White House cybersecurity official Carole House has raised concerns and advocates that software developers should bear more legal responsibility for the code they write. She believes that without an accountability mechanism, it will set a dangerous precedent for artificial intelligence and other technology fields. Marc, you have been studying the artificial intelligence track for a long time, how do you view this point?
Marc: This line of thinking is equivalent to imposing the death penalty on the industry. Software developers cannot foresee how their code will be used in the future. Let's step out of the software industry for an example: If a criminal stays at a hotel and plans a crime using the hotel's facilities, should the hotel operator be held accountable for conspiracy? If an automotive engineer designs a vehicle that is later used in a robbery, is the engineer an accomplice to the robbery? If product developers are required to bear joint liability for all subsequent user actions, the entire playing field will completely disappear.
Chris: Let me add: If you develop software that actively encourages others to use the code to commit crimes, that in itself is illegal and not up for debate. The scenario we are discussing is entirely different: Developers develop open-source software with positive intentions, creating AI models, building foundational blockchain networks, and sharing them openly. Once the law requires open-source developers to bear unlimited civil and criminal joint liability, no one will be willing to continue developing open-source projects. Open-source teams are mostly not well-funded large enterprises and would find it challenging to bear enormous litigation risks. Garage startups cannot possibly shoulder unlimited liability. The policy will strangle startups, destroying the open-source ecosystem.
Marc: The same contradiction also arises in the discussion of artificial intelligence regulation. The day strict accountability rules are implemented is the day open-source technology dies. Most open-source developers do not have a source of income and cannot afford huge legal risks. The collapse of the open-source ecosystem will also lead to stagnation in academic research. Computer-related research heavily relies on the open-source system. This will then severely impact the entire field of computer science. The risk will continue to propagate, becoming so high that it is difficult to estimate, and venture capital firms will no longer invest in related startups. Both startups and large tech companies will be affected.
Practical Impact of the CLARITY Act on Securities Law
Robert: One final frequently asked question is whether the act will circumvent the existing securities law framework. Marc, as you just mentioned, for the past 90 years, securities law has supported the vibrant development of the U.S. capital markets. Critics argue: After the act is implemented, companies can directly tokenize assets and put them on the chain to circumvent SEC regulation and securities law constraints. How do you respond to this?
Chris: The wording of the act is very clear that even after stock tokenization, it still falls under the securities category, subject to SEC securities law regulation, without any exemption. The only differentiation is that the CLARITY Act explicitly defines that blockchain-native tokens like Bitcoin and Ethereum, based on their development stage, are regulated by either the SEC or the CFTC.
We outline the logic: In the early days of Bitcoin, initiated by Satoshi Nakamoto, any new project naturally exhibits centralization features in its startup phase, with the founding team holding control and possessing non-public information. According to regulatory laws, new project tokens are initially under SEC oversight. New projects need to comply with a full set of securities regulations, including lock-up rules and mandatory disclosure of information. As the project develops and achieves a certain level of decentralization, evolving into networks like Bitcoin and Ethereum today that have no single controlling entity and no conditions for insider manipulation, the regulatory authority shifts to the CFTC, applying regulatory measures akin to commodities. The regulatory framework dynamically adjusts based on the asset's characteristics. Even under commodity oversight, relevant rules will still guard against market manipulation, forced selling, and various illicit activities.
Robert: Similar to commodities such as gold, precious metals, crude oil, and wheat.
Chris: Exactly. The previous administration also stated that Bitcoin and Ethereum have a high enough level of decentralization to be regulated as commodities. Over the past decade, regulatory agencies from both parties and multiple legal cases have all tacitly endorsed this logic.
The CLARITY Act simply codifies the long-standing industry consensus into law, clearly defining standards so that market participants no longer need to undergo lengthy litigation to ascertain regulatory jurisdiction. Currently, anyone issuing a new token lacks uniform disclosure rules, oversight of insider trading, and a founder lock-up mechanism. After the act is enacted, risk isolation standards will be formally established. Before a project reaches decentralization standards, the founding team and venture capital token holders must strictly adhere to lock-up rules, which is a reasonable regulatory model. This comprehensive regulatory framework built on risk levels is highly robust. Consumers, investors, and all market participants can establish trust and develop their businesses based on clear rules. A sustainable industry in the long run cannot do without standardized regulation.
If the CLARITY Act Fails to Pass
Robert: After reviewing all the core contentious issues at the moment, any divergence could potentially derail the act. If the CLARITY Act ultimately fails to pass, what consequences would arise?
Chris: We will continue to push for relevant legislation. Regulatory bodies such as the SEC, CFTC, Treasury Department, etc., can introduce some regulatory details within their administrative authority. However, regulations established by administrative agencies are less stable than congressional legislation.
Long-standing stable regulations continuously safeguard consumer rights and provide industry certainty. Building products often takes several years. If regulatory policies keep fluctuating, entrepreneurs find it challenging to commit significant time and resources to long-term strategies. Entrepreneurs already face numerous challenges, and a regulatory environment in constant flux only adds to the uncertainty. This is the biggest downside of a failed act: prolonged industry regulatory ambiguity. But I remain optimistic; the act is expected to pass soon. If it faces obstacles, we will not cease our efforts to drive the legislation forward.
Defending America's Global Tech Leadership
Robert: Taking a broader view, let's discuss the significance of the bill for the United States and America's global tech leadership. Why is advancing the "CLARITY Act" important for national interests?
Marc: This legislation continues America's longstanding tradition of leading global tech innovation, concerning America's tech dominance. The key question boils down to two points: Do we want our nation to continue spearheading global tech innovation? The first key issue: After new tech emerges, do we choose to embrace it or dismiss its value? The second one: Once a technology is born, its development trend is hard to reverse. Do we want industries to be based in the U.S. or easily handed over to other countries?
We firmly believe that regardless of any political stance, all American citizens should support the U.S. in maintaining its global tech leadership. This advantage can translate into tangible economic benefits, raise the national wealth level, and support various public expenditures. Being at the forefront of tech also significantly impacts national security. With the crypto industry rooted in the U.S., the overall benefits to American law enforcement and national security outweigh the drawbacks. We are so used to the U.S. leading global tech for so long that articulating this view seems almost redundant, the reasoning is very straightforward. The U.S. has fully enjoyed the dividends brought by being at the tech forefront in the past hundred years. In my opinion, we should strive to maintain this advantage and continue leading for centuries.
Robert: Will policymakers embrace these views, realize the urgency, and understand that whoever sets the standards first can reap long-term benefits? The answer awaits validation over time.
Thank you both.
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