Venture capital firm Andreessen Horowitz (A16Z) has called on US lawmakers to change a draft bill of crypto regulation, warning that the proposed framework may open dangerous loopholes and break investor protections.
On a Thursday that is open Letter In the US banking Committee, the investment firm suggests that regulators should close loopholes in the Crypto Draft law. The letter is a response to The discussion draft was released in late July.
The discussion discussion with the discussion constitutes the Financial Innovation and Technology Act (CLARITY ACT) and looking for industrialization of the industry on the ongoing crypto regulation. A16Z points out the meaning of ten assets, which refers to tokens sold with an investment contract that gives consumers without equity, dividend or management rights.
“The ancillary asset construct should not serve as a foundation for the law without significant change,” the letter reads.
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A16Z pushed the “Digital Commodity” model
A16Z said the current approach failed to resolve the key issues facing crypto markets and not compatible with Howey Test, the long legal benchmark for determining security.
The investment firm said this method “will not solve the challenges faced by participants in the crypto market.” Instead, the company recommends adopting a narrower outline of the “digital commodity” framework, which it says will provide more certainty while maintaining the simplicity of the regulation.
A16Z also claimed that “Howey Test remains a critical component of US security law” and must remain in its current form. Its suggested solution is to “I -Codify a modernized application that suits these ten assets.”
It describes the suggested changes in Howey’s test as “unnecessary – and dangerous – because it intends to re -write Howey in a way that departs from fixed law and overthrows investor protections”:
“These changes are not just a problem – they are not compatible with the broader architecture of the US Securities law.”
Insider sales should be limited
A16Z also said that applying security law to major commodity transactions and regulations for the second transaction creates a loophole, allowing those who give to sell about ten owners to the insider under the exceptions, and then sell in the public market without falling under security regulations.
As a solution, the investment firm suggests that projects require projects to achieve decentralization by removing control mechanisms. Applying transferring restrictions by means “loopholes can be closed otherwise,” the letter said.
According to A16Z, it will also avoid the enrichment of the insider at the cost of public investors and ensure that the difference between the primary and secondary markets remains significant:
“When the control is left and the project is decentralized, those restrictions must fall, as the dependencies of the confidence of the asset now resemble a commodity.”
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A framework of decentralization based on control
The firm suggests that regulators should adopt a control-based decentralization framework, which says that “is the appropriate way to assess the evolution of the risk profile of a ten asset.”
The letter explains that this method should “should be focused on whether any party maintains unilateral authority – operating, economic, or management – in the blockchain system.” This, according to the investment firm, should be considered when the Howey test is applied:
“Howey should not be abandoned. Instead, Congress should codify Howey-based principles for property under a control-based control framework.”
Protect plumbers, not the pipes
A16Z further said that the previous US Securities and Exchange Commission’s (SEC) focused on the “efforts of others” aspects of Howey Test “has created significant bending incentives.”
It says that it leads to lower transparency, exposing users to unspecified risks and innovations. The letter also suggests that being involved in technology on the basis of crypto should not violate security law.
“The law should clarify that the basic functional technologies required for the operation of decentralized blockchain systems – such as the operation of consensus algorithms, mining, staking, and implementing intelligent contracts – no, in themselves, developed regulated financial activity under US security laws,” the company said.
