A16z Advocates Privacy-Driven Crypto Rules to Balance Innovation and Security

Andreessen Horowitz's crypto division, a16z Crypto, has called on the U.S. Treasury to clarify the scope of the GENIUS Act to exclude decentralized stablecoins from regulatory oversight, arguing that such a move would foster innovation while maintaining security. In a November 4 letter to Treasury Secretary Scott Bessent, the firm emphasized the need to distinguish between decentralized stablecoins—issued via autonomous smart contracts—and centralized "payment stablecoins" governed by the new law.

The GENIUS Act, passed in July 2025, establishes a framework for payment stablecoins, requiring full reserve backing, annual audits, and priority claims for holders in bankruptcy. However, a16z contends that decentralized stablecoins, like Ethereum-based LUSD, operate without a central entity and should not be subject to the same restrictions. "Since decentralized stablecoins are not issued by a 'person' within the meaning of the Act, they are not covered by the prohibition in Section 3(a)," the letter stated. The firm recommended adopting a control-based decentralization framework from the 2025 Digital Asset Market Clarity Act, which exempts non-custodial activities from intermediary regulations.

Alongside this request, a16z advocated for modernizing anti-money laundering (AML) and know-your-customer (KYC) rules to incorporate privacy-preserving technologies such as decentralized digital identity (DID) and zero-knowledge proofs (ZKPs). Michele Korver, a16z's regulatory head, argued that DID systems empower users to control their data while enabling regulators to detect illicit activity without exposing sensitive information. "Unlike traditional identity systems, decentralized digital identity reduces cyber risks and avoids surveillance pitfalls," Korver wrote, highlighting how ZKPs and multi-party computation (MPC) can verify transactions without revealing personal details.

The firm's submission aligns with broader industry momentum toward privacy-centric solutions. Zcash (ZEC), which uses ZKPs for confidential transactions, surged 1,172% year-to-date, while projects like Midnight—a privacy-focused Cardano sidechain—are attracting institutional interest. a16z also stressed the importance of balancing compliance with innovation, noting that less than 1% of on-chain transactions are illicit and that overregulation could stifle technological progress.

The Treasury's implementation of the GENIUS Act has drawn mixed reactions. While Coinbase and Circle have welcomed the law's emphasis on stability, they've also called for clarifications on interest payment restrictions. a16z's push for decentralized identity frameworks has garnered support from crypto developers and privacy advocates, who see it as a step toward responsible, innovation-driven finance.

With the Treasury expected to finalize GENIUS Act regulations by year-end, the debate over privacy versus oversight will likely intensify. a16z's proposals—exempting decentralized stablecoins and integrating cryptographic compliance tools—could shape the U.S. into a global leader in privacy-first digital finance, provided regulators prioritize adaptability over rigid controls.