How should regulators distinguish between programmatic code and corporate issuers when drafting stablecoin rules? A16z contends that careful statutory and regulatory definitions are necessary to separate decentralized, programmatic stablecoins from centralized payment instruments issued by corporate entities, arguing that some protocols operate autonomously through smart contracts and lack a controlling “person,” and consequently they should not be captured by issuer-focused provisions of the GENIUS Act. The firm points to examples such as Ethereum-collateralized LUSD to illustrate systems where governance and operation occur through code and distributed participants rather than a single legal issuer, asserting that conflating these models with licensed payment stablecoins would impose inappropriate licensing requirements. It recommends explicit exemptions or tailored language that recognizes autonomous protocol behavior, to prevent application of Section 3(a)-style issuance restrictions to entities that do not function as traditional issuers. a16z also submitted its views directly to Treasury, urging the agency to exclude decentralized stablecoins from the bill’s scope.
A16z also advances technical approaches for compliance that preserve privacy, proposing decentralized digital identity systems that leverage zero-knowledge proofs and multi-party computation, tools that can verify attributes without revealing underlying personal data. The submission frames these cryptographic mechanisms as means to satisfy AML/KYC objectives while limiting data exposure, and suggests regulators modernize compliance standards to accept attestations and proofs rather than bulk data collection. It warns that rigid adherence to legacy processes risks creating surveillance-like outcomes, whereas privacy-first designs can reduce fraud and operational costs while still enabling law enforcement access under appropriate controls. The filing notes that A16z Crypto submitted its recommendations in response to Treasury and FinCEN requests for comment. These privacy mechanisms often utilize zk-SNARKs fundamentals to enable validation without compromising user data.
The firm further urges incorporation of a decentralized control framework, similar to provisions in the 2025 Digital Asset Markets Clarity Act, into GENIUS Act implementation, recommending explicit exceptive relief for activities such as node operation, transaction validation, and non-custodial wallet development, to avoid inadvertent intermediary regulation. A16z emphasizes that clear, technology-aligned statutory language will reduce legal uncertainty for startups and builders, cautioning that vague rules tend to favor incumbents and stifle innovation. The submission calls for regulators to use existing authorities under the Bank Secrecy Act to pilot blockchain-based identity verification, balancing innovation, security, and civil liberties in stablecoin policy. However, it also recognizes that the high computational overhead in some cryptographic proof generation can present challenges for broader adoption and performance.
