DOJ's Crypto Crackdown: a16z Pushes for Clarity on 'Control'

The US Department of Justice (DOJ) has been criticized for its stance on decentralized finance (DeFi) protocols, with venture capital firm Andreessen Horowitz (a16z) arguing that the DOJ should stop holding DeFi protocols accountable for wrongdoing they didn't instigate and can't control. In a February 4 blog post, a16z stated that "holding people responsible for systems and activities over which they exercise no agency or control leads to perverse outcomes."

The VC firm argued that the DOJ has ignored this distinction and is attempting to hold software developers responsible for the actions of third parties that use neutral tools they originally created but no longer control. a16z suggested that the new US presidential administration's "biggest policy priority" for crypto should be "codifying the proper and legally correct understanding of 'control' in law," particularly in determining whether crypto companies qualify as "money transmitting businesses."

a16z's portfolio of venture investments spans upward of 100 crypto companies, including decentralized exchanges (DEXs) such as Uniswap. The firm emphasized that unlike centralized exchanges like Coinbase, DEXs do not retain control over the protocol or have the ability to control how third-parties use it. Understanding this distinction is crucial to "establish[ing] a clear and fair foundation for crypto entrepreneurs and developers to build in the United States," the VC said.

Under former US President Joe Biden, federal agencies took an aggressive regulatory stance toward crypto. The Securities and Exchange Commission (SEC), the top US financial regulator, brought upward of 100 regulatory actions against industry companies. However, US President Donald Trump, who began his term on Jan. 20, has promised to make America "the crypto capital of the world" and to replace agency heads with more industry-friendly appointees.

In past legal actions, US prosecutors sought to hold cryptocurrency developers liable for activities conducted on their platforms by others. a16z compared this to holding a car manufacturer accountable for actions by a negligent driver that resulted in a crash, stating that "it wouldn't make sense to hold carmakers responsible for the bad driving of their vehicles' users." The VC firm emphasized that these principles seem obvious in the case of automobiles but are still at issue in the digital sphere.