- The Silicon Valley VC firm urges SEC to lay off DeFi.
- It's a question of control.
- VC firm is struggling to invest its crypto fund.
A version of this story appeared in our The Guidance newsletter on March 24. Sign up here.
When it comes to crypto, who’s in charge?
The founders of a project that issues tokens? Or the software that makes a blockchain tick?
This question has whirred at the heart of crypto ever since the marketplace started to truly scale in the early 2010s.
Gary Gensler, the former chair of the US Securities and Exchange Commission, argued that people and companies are ultimately responsible for the issuance of instruments that can be traded in the marketplace. As a result, the securities laws should govern crypto.
But industry leaders such as Coinbase’s Brian Armstrong and Ripple’s Brad Garlinghouse countered that blockchain technology’s automation renders the old securities rules obsolete for crypto.
50-page argument
Now Andreessen Horowitz, the venture capital firm known as a16z, has weighed in by dropping a 50-page policy prescription as part of the SEC’s solicitation of ideas for new crypto regulation, Andrew Flanagan reported.
A top argument: decentralised systems such as Ethereum basically need no regulation because there is no one actually in control of the blockchain.
Moreover, blockchains and smart contracts, the twin pillars of DeFi, should not be classified as business entities for the purposes of financial regulation, a16z said.
These ideas have been central tenets of DeFi, and indeed all of crypto, for years. Permissionless systems, after all, are the raison d’etre of the entire proposition.
But these tenets have yet to be codified in the US rulebook, and companies and investors will remain wary of regulatory risks until they are.
There’s a lot at stake for a16z.
Dry powder
The Silicon Valley firm founded by Marc Andreessen and Ben Horowitz has amassed $7.6 billion in funds for crypto startups, and as Pedro Solimano reported, the firm has been struggling to deploy the $4.5 billion raised in its fourth fund even in the midst of a bull market.
The reasons why: a16z is sitting on a mountain of dry powder and it’s hard to write big cheques for crypto startups that often have barely-there business plans let alone actual revenue.
By arguing that decentralisation is about “dispersing ownership” and the elimination of control, a16z is hoping to persuade the SEC that DeFi should float largely outside existing rules.
While critics may argue that’s been the status quo anyhow, now this understanding would become legally defined.
And that would be a watershed for the industry.
Edward Robinson is the story editor for DL News. Contact the author at ed@dlnews.com.