Leading venture capital firm Andreessen Horowitz has raised serious concerns over a draft crypto regulation bill currently under review by the US Senate Banking Committee. The firm argues that the proposed framework could introduce loopholes that weaken investor protections and complicate the legal standing of digital assets.
“Ancillary Asset” Definition Under Scrutiny
At the heart of the criticism is the “ancillary asset” concept, a term used to describe digital tokens sold as part of investment contracts but without giving holders any equity or governance rights. According to the firm, this definition creates regulatory ambiguity and is incompatible with the Howey test—a longstanding legal standard used to determine what qualifies as a security.
“This concept could open a path for insider enrichment while bypassing regulatory safeguards,” the firm warned.
Call for a Digital Commodity Framework
Instead of the ancillary asset approach, Andreessen Horowitz recommends that lawmakers adopt a narrower “digital commodity” model. This framework, they argue, offers greater legal clarity while maintaining regulatory consistency across digital markets. It would also prevent unnecessary changes to securities law that might undermine investor confidence.
“Howey should not be rewritten. It should be codified to reflect control-based decentralization principles,” the firm stated.
Addressing Insider Loopholes and Market Manipulation
The letter highlights a specific concern: applying securities law only to primary transactions, while leaving secondary market trades under commodity regulations, may enable issuers to offload tokens to insiders, who later resell them without disclosure. This, they argue, bypasses the protections intended for public investors.
To solve this, the firm suggests transfer restrictions until a project achieves true decentralization—defined by the absence of any controlling authority over the blockchain’s governance, operations, or economics.
Core Technology Should Remain Unregulated
The firm also urges lawmakers to distinguish between technical functions and financial activities. Running consensus algorithms, staking, or executing smart contracts should not be treated as regulated financial behavior, according to their proposal.
“Protect the plumbers, not the pipes,” the letter emphasized.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.
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