Venture capital giant Andreessen Horowitz (a16z) has raised red flags about potential vulnerabilities in proposed US cryptocurrency legislation, calling for critical revisions to protect investors and maintain market integrity.

Ancillary Asset Concerns Take Center Stage

The Silicon Valley firm specifically targeted the "ancillary asset" classification in its July 31 response to Senate Banking Committee proposals. This category currently covers tokens sold with investment contracts that lack traditional equity features. 【A16z argues】 this creates regulatory gaps allowing projects to bypass securities laws after initial fundraising.

"The current framework resembles Swiss cheese more than sound policy," noted the firm's 12-page analysis, suggesting the approach conflicts with established securities law principles. The letter emphasizes that 【70%】 of recent enforcement actions by the Securities and Exchange Commission (SEC) involved similar asset structures.

Digital Commodity Framework Proposed

Instead of the ancillary model, a16z advocates adopting the CLARITY Act's "digital commodity" classification with modifications. The firm maintains this would provide clearer guidelines while preserving the Howey test's investor protections—a legal standard used since 1946 to determine what constitutes a security.

——"Rewriting Howey would be like removing the foundation from a skyscraper,"—— the letter cautioned, noting the test's flexibility has accommodated technological evolution for decades. The proposal suggests modernizing its application rather than overhauling core principles.

Closing the Insider Trading Loophole

A16z identified a critical vulnerability where insiders could exploit exemptions to dump tokens on retail investors. The current draft permits this by applying securities rules only to initial sales while treating secondary markets as commodities.

The solution? Mandating true decentralization before assets enter public trading. "Projects should demonstrate they've eliminated centralized control mechanisms," the firm advised, proposing transfer restrictions that lift only after achieving verifiable decentralization.

Tech Infrastructure Protection Push

The letter also seeks safeguards for blockchain developers, arguing that core protocol activities like staking or smart contract execution shouldn't automatically trigger financial regulations. This distinction aims to prevent what a16z calls "the plumbing from being mistaken for the water."

Industry analysts observe these recommendations arrive as 【global crypto regulation】 enters a pivotal phase, with the European Union's MiCA framework taking effect and multiple Asian nations finalizing digital asset rules. The Senate Banking Committee is expected to review all submitted comments before advancing legislation this fall.