Andreessen Horowitz Urges Overhaul of Senate Crypto Bill to Fix Investor Protection Loopholes

Andreessen Horowitz has called for significant revisions to the U.S. Senate’s draft cryptocurrency legislation, warning that current provisions could undermine investor protections and create regulatory ambiguity [1]. The firm specifically criticizes the inclusion of the “ancillary asset” concept, which it argues introduces dangerous loopholes by allowing tokens to be classified outside the scope of traditional securities law. Andreessen Horowitz emphasizes that this framework conflicts with the principles of the Howey test, a longstanding standard for identifying investment contracts, and could destabilize the broader regulatory structure [1].

To address these concerns, the firm advocates for a digital commodity model similar to that proposed in the CLARITY Act. This approach would provide a clearer, more precise regulatory framework that aligns with the Howey test while modernizing its application for crypto assets. Andreessen Horowitz stresses that rewriting the Howey test could introduce legal uncertainty and weaken investor safeguards, rather than strengthening them [1].

Another key issue highlighted by Andreessen Horowitz is the risk of insider sales under the current draft legislation. The firm explains that the bill's separation of securities law for primary transactions and commodity law for secondary transactions allows issuers to sell “ancillary assets” to insiders without regulatory oversight. These tokens can then be resold to the public without scrutiny, potentially enriching insiders at the expense of retail investors. To mitigate this, Andreessen Horowitz recommends imposing transfer restrictions until a project achieves true decentralization by removing centralized control mechanisms [1].

The firm further proposes a “control-based decentralization” framework to evaluate crypto assets based on whether any party retains unilateral control over the blockchain’s operational, economic, or governance functions. This approach, it argues, would help regulators apply the Howey test more effectively and ensure that the regulatory treatment of crypto assets reflects their actual risk profiles [1].

Andreessen Horowitz also warns that the SEC’s focus on the “efforts of others” aspect of the Howey test has led to perverse incentives, reducing transparency and stifling innovation. The firm insists that core blockchain functions—such as mining, staking, running consensus algorithms, and executing smart contracts—should not be classified as regulated financial activities. Clarifying this distinction, it argues, would reduce unnecessary regulatory burdens on developers and users [1].

Overall, Andreessen Horowitz’s recommendations aim to refine U.S. crypto legislation in a way that promotes clarity, investor protection, and innovation. The firm calls on lawmakers to adopt a balanced and precise regulatory approach that reflects the unique characteristics of crypto assets while preserving the foundational principles of securities law [1].

Source: [1] Andreessen Horowitz Suggests Revising Ethereum Regulation to Address Loopholes in Draft Crypto Legislation (https://en.coinotag.com/andreessen-horowitz-suggests-revising-ethereum-regulation-to-address-loopholes-in-draft-crypto-legislation/)