Venture capital firm Andreessen Horowitz urged U.S. lawmakers to rethink a draft bill aimed at regulating crypto markets, warning that the proposed framework could weaken investor protections and leave room for regulatory arbitrage.
In an open letter sent to the Senate Banking Committee, the firm — also known as a16z — called for major revisions to the discussion draft introduced in late July. The legislation builds on the 21st Century Financial Innovation and Technology Act, also known as the CLARITY Act, and seeks public feedback from the crypto industry.
At the center of a16z’s concerns is the bill’s use of the “ancillary asset” concept — a category that covers tokens sold with investment contracts but without offering equity, dividends, or governance rights. The firm said the definition, if left unchanged, could open the door to insider sales that escape securities laws.
“The ancillary asset construct should not serve as the foundation for legislation without significant modifications,” the letter said.
Instead, a16z is pushing for a narrower “digital commodity” model rooted in the existing CLARITY framework, which it says would provide clearer boundaries without overcomplicating regulation. The firm also stood by the long-standing Howey test — the benchmark used to define securities — saying attempts to rewrite it would be risky and unnecessary.
“These changes are not merely problematic — they’re incompatible with the broader structure of U.S. securities law,” the letter said.
The firm warned that the draft bill’s current structure could allow issuers to distribute tokens to insiders under exemptions, then sell them to the public without full regulatory oversight. A16z called for stronger rules around decentralization — urging lawmakers to require projects to give up core control mechanisms before securities rules are lifted.
“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,” the letter said.
A16z also proposed adopting a “control-based” test for decentralization, looking at whether any party still holds operational, economic, or governance power over the blockchain. It argued that this lens could help clarify how to apply the Howey test to emerging crypto assets without abandoning legal precedent.
Finally, the firm said lawmakers should distinguish between those who build blockchain infrastructure and those who profit from it — warning that broad regulatory definitions risk sweeping up developers, node operators, and stakers into financial enforcement.
“Running consensus algorithms, staking, or executing smart contracts should not, on their own, trigger securities or commodities regulation,” a16z said.
