Editor’s note: This week on the a16z crypto show, Marc Andreessen and cdixon joined editor Robert Hackett to talk about the CLARITY Act — the market structure bill now working its way through the Senate — and what’s at stake if it passes or stalls.
Highlights
00:00 Intro
05:31 From crypto subculture to financial infrastructure
08:37 Why crypto needs rules now
12:20 The regulatory war on crypto
15:41 How CLARITY could prevent another FTX
22:42 Why criminals using crypto may be easier to catch
26:20 Privacy, blockchains, and the invention of HTTPS
30:41 Government ethics and crypto
34:52 The banking lobby’s stablecoin fight
37:05 Why every major bank is building on blockchains
41:04 Developer liability as a kill shot
45:23 How CLARITY provides oversight
49:30 What happens if CLARITY fails?
50:50 Regulation vs. innovation
54:12 Why America should lead
55:36 What CLARITY could unlock
Trancript
Robert: Welcome to the a16z crypto show. I’m Robert Hackett, and I’m here with Marc Andreessen and Chris Dixon, who, if you watch the show, need no introduction.
Marc: Great to be here.
Robert: So today we’re talking about regulation. Congress is currently hashing through once-in-a-generation market structure legislation that could determine where the future of the financial system and the internet get built.
There have been lots of fights and obstacles, which we’ll get into, but before we do, I want to zoom out and go big picture and talk about why regulatory clarity matters, what the status quo costs us, and what’s at stake for the country and for anybody who may end up using this technology.
So, Marc, I’d like to start with you. Back in January 2014, you wrote an op-ed for The New York Times called “Why Bitcoin Matters.” Things were a little bit different then. This was a pretty contrarian position to stake out. The crypto industry, which, if you could even call it that back then, looked very different.
How have things changed from then to now?
Marc: Sure. 2014 was so long ago that The New York Times actually ran a positive piece on crypto.
Robert: From you.
Marc: From me, with my name on it. And so, yes, this was in the distant past. For the kids watching this, this is when dinosaurs roamed the Earth, thirteen years ago.
Might as well have been in the 1500s. But I’m actually really proud of that piece. And so if you read that piece today, I think it holds up really well. I think it holds up in a few respects. One is — and I should say this — it’s actually fairly amazing: this piece came five years after the Bitcoin white paper, already five years into the broader trend.
And it was still big news to believe that this technology mattered at all. So I think I was prescient, not that Bitcoin was going to matter, but in forecasting that we were still at the beginning of the adoption curve.
There were still a lot of people who were going to have to learn about this, and who would want to learn about it and be part of it. And so I think that holds up. I spent a lot of time in the piece and around that time trying to educate people on the nature of this technology, with Bitcoin and the blockchain, because that was new.
For people who do have computer science degrees, it’s a weird idea. So for people who don’t have computer science degrees, it’s a genuinely new idea. And I think the importance of that has held up really well. I think the thing that, in retrospect, needs to be changed about the piece is: every time I said Bitcoin, just swap in crypto.
At that time, Bitcoin was crypto. It was essentially the only game in town. Chris, you can correct me on the timing, but I believe at that point there was the proposal for what were called colored coins.
Chris: Around then.
Marc: Around then. For people who don’t remember, there was a proposal for this thing called colored coins, which is the single worst-branded proposal of all time.
Much worse than New Coke. But the concept was that bitcoins would be tagged with properties that would let them represent other things. The idea was that Bitcoin would be extended to enable both tokenization of real-world assets and virtual assets like NFTs.
Of course, that didn’t happen. What happened instead was the creation of new blockchains and new crypto platforms, and then ultimately Ethereum and everything else that followed. What started as a technology became an industry.
And so I think if you read that piece, you’ll see that I projected many of the use cases and the future development of the technology, but it took a different path. Bitcoin obviously has been very successful since then, but what we’ve really seen is this explosion of innovation.
This explosion of innovation has both happened and still wants to happen around all the other use cases we talked about in the piece.
Robert: It’s actually remarkable how well that piece holds up. But there is one forecast in there that I want to cite in particular. You wrote, and I quote, “The coming years will be a period of great drama and excitement revolving around this new technology.”
I think you were spot on there. Chris, you’ve been there since the start as well. You were an early advocate and acolyte of crypto.
Robert: How have things changed from the early days to now?
Chris: As Marc was saying, way back in 2014, in the early days, it was mostly a cultish subculture of hobbyists and super enthusiasts.
The technology — Bitcoin — was sophisticated, but a lot of the newer blockchains Marc alluded to were early and had performance issues, scaling issues, and other kinds of problems. Fast-forward to today: every day, you’ll see a new announcement from a major bank or fintech company about a platform involving stablecoins, tokenized stocks, or other kinds of digital assets.
Stablecoins, for those who don’t know, are basically what Marc described with Bitcoin, except they’re dollars on blockchains. Stablecoin volume now rivals the size of the Visa network. You can go into WhatsApp and send money anywhere in the world for almost free, in the same way you’d send a text message, using stablecoins.
It’s really the way money should work. I think Marc could speak to this as one of the pioneers of the internet, but it was one of the ideas early internet pioneers expected to happen much sooner. For a variety of reasons, it took a lot longer, but we’re now finally seeing that dream come alive, with money moving as easily as bits.
So now it’s a very mature industry. The technology, the underlying infrastructure, has gotten much more sophisticated. Even three years ago, what I just described might cost a couple of dollars, if not tens of dollars, per transaction. Now, on most of the popular blockchains — Solana, Ethereum, and so forth — transactions settle in under one second and cost less than a penny.
And that’s due to the equivalent of Moore’s law on blockchains: you’ve gotten more and more performant chains. You read about hacks and things in the newspaper about crypto. Bitcoin has never been hacked. Ethereum has never been hacked.
Organizations that use these things have had lax security and have been hacked, but the chains themselves are highly secure and highly performant now. You have big institutions and trillions of dollars moving around in these things, which brings us to our topic: when you have that going on, you need regulatory clarity.
You need a framework around that.
Robert: Let’s talk about that. You cited that stablecoin volumes are now rivaling the Visa network, which is insane. This is trillions of dollars per quarter moving through this system. Lots of gigantic financial institutions have rushed in: BlackRock, JPMorgan, Visa itself, Fidelity, Mastercard.
You could rattle off just any number of names, and they’re all building on this technology right now. But we’ve gotten this far without rules. So there’s been very little in the way of regulatory clarity or guidance.
Robert: Why do we need rules now?
Chris: Good question.
For political and policy reasons, regulation around crypto was broken into two components: stablecoins and the rest of the market. Stablecoins are roughly 15 percent of the market, let’s call it, and the rest is 85 percent.
Robert: And that’s by market cap.
Chris: That’s by market cap. Last year, a bill passed Congress and was signed by the president called the GENIUS Act, which provides a comprehensive regulatory framework for stablecoins. It’s not a coincidence that stablecoins are also the area that has taken off the most in the last year, because once you have regulatory clarity, builders have certainty and consumers know what to expect.
If you’re an American consumer and you use USDC or another GENIUS-compliant stablecoin, and you have a dollar of that stablecoin, there is a dollar sitting in the bank, because that’s the GENIUS regulation. That bank is audited, and the money is sitting in short-term Treasuries, which is basically the safest thing the financial system can offer. And so you can be assured that the dollar is there.
It’s not an FTX or Terra-Luna situation where it will disappear tomorrow. That gives you, as a consumer, confidence and protection. If you’re an institution, a bank, Stripe, or PayPal, and you want to enter this market, you want to know there are predictable rules and a framework around it. You want to know there’s not going to be an FTX and that what you build will be compliant not just next year, but for the next 10 years.
And then if you’re an entrepreneur, it’s similar logic. You want to know there’s certainty. You want to know there are rules. All our entrepreneurs are happy to hire lawyers and pay a lot of money to be compliant. They just need to know what they’re aiming for.
And so, as a result of that bill, we’ve seen a takeoff, particularly around stablecoins. A close cousin of stablecoins is the tokenization of other assets: once you put a dollar on a blockchain, you can put a stock or a Treasury bill on one. There’s also been a lot of adoption there, with people relying on agency guidance and other nonlegislative regulatory levers to guide them on how to do that.
But the big hanging problem right now is this other section of the market, including the blockchains themselves, which stablecoins are built on, that doesn’t have a comprehensive federal regulatory framework. That’s why the CLARITY Act, which is working its way through the Senate, is so important, because that’s the other 85 percent of the market.
You can imagine it as if we had a regulatory framework for cellphones, but not for cell towers. Half the technology is regulated; the other half has uncertainty around it. People are still building there and trying to do their best to understand what the rules are.
There’s another lever of policymaking: agencies such as the SEC and CFTC. They’ve provided some guidance. But ultimately, as you alluded to in the beginning with the internet, industries are built on legislation.
Legislation is solid ground to build on and has the stamp of approval of the U.S. Congress. Importantly, legislation is the result of a lot of smart people getting together, people from different political parties compromising and finding the right balance between industry and consumer protection.
And so we think ultimately that’s what is required and why the CLARITY Act is so important.
Robert: So as you mentioned, we do have some rules for stablecoins. That covers a sliver of the market, but there’s this gigantic swath of the market that remains largely unregulated. Marc, why do we need rules for all of this, and why do we need them now?
Marc: We’ve been in this bizarre twilight state for the last several years, where crypto was developing largely without rules, for better or worse, in what I would describe as experimental ways, between inception and 2020.
And then, between 2020 and 2024, we had an administration in the White House that absolutely decided to kill the industry and flat-out declared war. Specifically, it declined to regulate, refused to regulate, and instead decided to prosecute.
And this remarkable thing happened: the industry didn’t die through that process. Crypto is still standing. The most bizarre aspect of that for me is that I’ve had conversations with some lawmakers in D.C. where they say, ‘I’m going to support crypto now because if it didn’t die during this whole period when we tried to kill it, then it must be good.
We should probably support it.’ That is the most reverse-logic way I can think of to end up positive on something. But I guess I’ll take it. And then that also led to this bizarre situation where people said, ‘Crypto hasn’t materialized in the way that you guys all said.
You don’t have all these use cases, so where are all the use cases? Why isn’t everybody using crypto?’ And it’s like, well, because there was a five-year regulatory prosecutorial assault that tried to kill it. Most areas of the tech industry never go through that.
Occasionally, one does. When that happens, it operates under very different kinds of pressure. Along the way, when that assault was happening in America against American companies primarily, overseas companies by and large ran in whatever way their local jurisdiction allowed.
And that culminated in the catastrophe of FTX, with customer funds being stolen outright. That led to a catastrophic blowup. Then people look at that and they’re like, ‘Well, see, you can’t trust crypto.’ Of course, the real answer is you can’t trust fully unregulated crypto.
You actually have to have a framework. You have to have risk controls at these companies, compliance, auditing, and all the things that a grown-up financial services business has. That’s the long-winded way of getting to the point: we need a stable, permanent regulatory structure for crypto in the U.S. the same way we have for stocks, bonds, and everything else.
We need it both because we need this industry to succeed, which we and many people think is extremely important, and we can talk about that. We also need it so that it doesn’t lead to catastrophe, so that it doesn’t result in more FTXs, and so that people’s money doesn’t get stolen.
We need it so that the winners of the market aren’t fly-by-night operations operating on yachts off some coast somewhere. In a lot of ways, it’s the most obvious thing in the world. The U.S. financial system has been through this many times before. The most famous case is the Securities Acts, which created the SEC and regulated the stock market, after which U.S. capital markets became the envy of the world over the next 90 or 100 years.
We’re not looking for a free lunch. We’re not looking for subsidies, protectionism, or support in that way. We’re just looking for a permanent framework that lets people do business responsibly. I think it’s the most obvious thing in the world.
Robert: So you mentioned FTX.
I think everybody might remember that exchange and its big implosion and collapse and all the fallout from it. What is inside the CLARITY Act that would prevent something like that from happening again?
Chris: Right now, there is no federal regulator for crypto exchanges, as an example.
The New York Stock Exchange and Nasdaq have federal regulators. Right now, crypto exchanges like Coinbase, Kraken, and FTX do not. For every good company like Coinbase, there are many offshore ones that are not good. There is simply no regulator, and this is one of the most important things.
A big chunk of the CLARITY Act is to provide that, so that the SEC and CFTC have oversight. The act establishes disclosure regimes, anti-fraud regimes, insider-trading rules — all the things that we are used to with other financial markets.
It’s the same kinds of rules with the same agencies overseeing them. If you’re a federally registered crypto exchange, at an absolute minimum, you’re being audited. You have all sorts of controls and surveillance regimes. There’s a whole suite of things in the act that would empower federal regulators to do their job.
And if you’re not compliant with these things, you couldn’t operate in the U.S. It would have prevented that. Another big catastrophe was Terra-Luna. It was a stablecoin that wasn’t stable. It didn’t have dollars or any other kind of stable currency behind it.
It was essentially a self-referential thing in which the token’s value depended on the token itself. It should never have been presented as a stablecoin and would be illegal. It is illegal under the GENIUS framework.
Robert: Works well when things are going up.
Chris: A lot of things work well when things are going up and don’t work otherwise.
The details are hard, which is why some of us have been working on the CLARITY Act for seven years or so. It’s now been over a year since the House passed its version, and the Senate has been working on it for a year.
There are a lot of hard details, and it takes a lot of work across the aisle. This has been a very bipartisan effort. Financial industries have been regulated before, and the principles used in other industries are being applied here. It’s frustrating to read some of the news coverage of the released CLARITY Act text. As far as I can tell, the authors apparently don’t read the bill, because they say there aren’t safeguards such as AML and sanctions regimes.
This is simply not true. It has strict definitions of who is subject to these requirements. It applies the same money-laundering and Treasury rules to crypto intermediaries that are applied in other markets.
The Fraternal Order of Police just came out with its endorsement of the CLARITY Act, the largest law-enforcement organization in the country. Opponents are saying it doesn’t have proper law-enforcement clauses and rules, but this is simply not true.
Robert: Let’s talk about that. We’ll go over the fights going on with this bill. It’s 600-something pages at this point.
Chris: Drag it into ChatGPT and ask, ‘Does it address money laundering?’ You can drop it into an LLM.
It’s not that hard. If people want to actually learn about this, you can do it.
Chris: It’s no excuse.
Robert: Let’s go over each of these fights, each of these debates. You talked about illicit finance. That’s one of the big ones.
Robert: In fact, one of the biggest opponents to the bill is Senator Elizabeth Warren. She and her camp have called it a ticket to sanctions evasion.
That’s a quote from her. If you hear her describe it, she says North Korea, terrorists, and ransomware hackers are going to run wild if this bill passes.
What do you say to that?
Chris: Right now, it’s extremely unclear, for example, which entities are subject to what rules. What I’ve learned is that when you have gray areas in regulation, you essentially have a race to the bottom.
I was on the board of Coinbase for a long time. Marc is on the board. Coinbase is a U.S.-based company. The company takes regulation and compliance extremely seriously. But compliance costs a lot of money and slows down product development.
Every year, a new offshore competitor pops up that doesn’t do those things and becomes popular because it can offer lower fees or iterate its product faster. Over and over again, we’ve seen this phenomenon: we try to bet on the good, compliant actor, but for each one there’s an evil twin — an offshore doppelganger that copies all the features, skips the compliance because it’s cheaper, and gains popularity.
The ambiguity ends up favoring the bad actors. The important thing to do with good regulation, and I think the CLARITY Act does this, is clearly define the regulatory perimeter: who’s subject to this and who isn’t. And if you’re not subject to it, you can’t do business in the U.S.
If you’re in the U.S. and doing business, you have to be subject to it. You give clear definitions and clear rules. As an example, in the CLARITY Act, if you’re a financial intermediary, somebody like Coinbase or a company that’s holding customer funds, you’re subject to the same rules as fintech companies like Stripe or PayPal.
It’s black and white in the bill. I don’t know how to argue with people who are saying things that are factually untrue. As I mentioned, there’s the endorsement of various law-enforcement agencies. There are a lot of Republican senators who are very strong on national security, sanctions, and North Korea who support the bill, and a number of Democrats who we think will end up supporting it and are similarly strong on those issues.
So I don’t think the criticism is true, nor does the range of support for the bill suggest otherwise.
Robert: Marc, what do you think about this criticism that the bill enables sanctions evasion?
Marc: I’ve spent quite a lot of time in the national-security world.
The national-security people I talk to typically don’t agree with that. In fact, they typically say something quite different: ironically, they’re hoping more criminals and terrorists use crypto and blockchains because there’s a trail.
There’s a blockchain, and there’s a trail. That is contrasted specifically with how a lot of terror financing happens today. I’ll give you an example from the world of Middle Eastern terrorism.
There is an existing legacy payment system that is not the banks or any piece of technology. It’s called the hawala system. It’s an ancient, centuries-old system of informal peer-to-peer payments, and it operates fluidly across borders.
The way it works is you’ll have two cousins, one in one country and one in another country. You give money to the cousin in one country, and the money never actually moves. That cousin tells the other cousin that the family now has that amount of money, and as a result, the money effectively becomes unlocked in the other location.
You literally have peer-to-peer payments happening around the world with no actual transfer of physical cash, so you can’t catch it at the border. There’s no digital trail because nothing has happened digitally. No paper trail, nothing.
That, for example, is how a lot of terror plots are financed. There was a term national-security people were kicking around a while ago. They called crypto ‘prosecution futures’: if we could get the bad guys to use crypto instead of other methods, we would be able to mine the blockchain to prosecute down the road.
This is one where the whole thing has been incredibly confusing because it’s an upside-down, backwards thing. Not talking about anybody in office, but even people in the industry have said things like, ‘Crypto is inherently anonymous, and you can’t trace anything.’
Those are upside-down, bizarro-world claims, which I think stem from people not understanding the technology. The reality is, if more bad guys were running more money through crypto, I think more bad guys would get caught, not fewer.
Robert: There’s this thing that happens on TV shows — crime procedurals, cop procedurals — where they’re like, ‘I’m the criminal. Wire me the money in Bitcoin. Nobody’s going to know about it.’
Marc: That’s totally crazy. There are a couple of things.
The traditional thing they do in TV shows is to put a gun to somebody’s head and say, ‘Do a wire transfer. Wire transfer the money.’ Then they’ll show a digital display that goes from zero to 100 percent as the money moves, and the whole thing happens within two minutes.
In the real world, try to move money through the banking system across borders. Good luck. It takes days and days because the systems are shut down, they don’t work on weekends, and there’s the paperwork and everything else. It’s completely, flat-out implausible.
So you’re exactly right. What’s happened is that they’ve extrapolated that straight to crypto. Contrary to what a lot of people may think, television does not reflect reality.
Neither the existing payment system nor crypto works that way in real life.
Chris: It’s actually a nontrivial research and product-development problem to build blockchains that have privacy, because they are so public.
We think that’s important, not for nefarious reasons. If you want to pay someone for a service — maybe it’s a private medical or financial matter — you don’t want everyone to know about it, just like in the regular financial system.
You’d want some privacy when sending someone a digital dollar. It seems natural. For a long time, everyone said, ‘Why would you want to build privacy? It’s only for criminals.’ Since GENIUS passed and dollar-denominated stablecoins have gotten more popular, we’ve heard people in D.C. say, ‘What about privacy? You need to have privacy.’
We agree. It’s reminiscent of the early internet. Marc, wasn’t it Netscape that invented SSL?
Marc: That’s right. We did.
Chris: And so, for the kids who don’t know this, HTTPS — that was Netscape.
That was an invention. At the time, it was like, ‘Who would need that? Why would you need to send secret stuff?’ Probably some bad guys did use it, but over time we all realized it was important, and 99.9 percent of it is good behavior.
It’s just people interacting with their bank or something. You guys had to go in front of Congress.
Marc: It was a four-year fight. It was actually quite analogous to this. Netscape was the first widely used piece of consumer software that incorporated modern public-key encryption.
At the time, we had to ship two different versions. We could ship a strong-encryption version inside the U.S., but encryption was classified as a munition under what were called ITAR export-control rules at the time.
Encryption was classified in the same category as a Tomahawk missile, which meant the Netscape browser was classified in the same category as a Tomahawk missile. We had to ship deliberately insecure versions of the product overseas, and you can imagine how much our overseas customers enjoyed that.
We clearly labeled it on the box: weak encryption, basically, do not trust this. You can imagine how that went for sales. Then foreign competitors immediately stepped in, started cloning it, and started making strong encryption.
People outside the U.S. just didn’t use our product. They used products made outside the U.S. We went to Washington, and as you do when you’re a kid, you explain things logically. They tend to stare at you like you’ve grown a third eye, so you start to get into the specifics and details.
But then you get into this fundamental dichotomy: is encryption bad because bad guys are going to do bad things with it? Or is it good because it is the key to establishing trust, enabling business, and allowing law-abiding citizens, both here and overseas, to cooperate and conduct business?
Do you want to completely eliminate the risk of any cybercriminality, or do you want to make Amazon.com possible? Those questions are deeply intertwined. It was a very long education process.
It took four years. It took a very long time to unwind. They ultimately made that change. The world did not end, for several reasons. One is, as you said, the use cases were overwhelmingly positive.
The intelligence services adapted in many ways. The other incredibly positive thing that happened was that American industry won. Not just Netscape, but many others. The global internet economy is dominated by American companies.
And if you’re in the national-security state and you ask whether you’d rather have this giant industry dominated by American or non-American companies, 100 percent of the time they’ll tell you they want it dominated by American companies because they can deal with American companies.
They can’t deal with some company running in another jurisdiction. A lot of times, they can’t even talk to them. It was a classic case study. That one took four years.
This one, Chris, we’re now in what, year seven? For people who think the modern world is speeding up, at least in this respect, it’s slowing down. This is why there’s so much pressure right now to get CLARITY passed: seven years to work through these issues is clearly enough.
Robert: Let’s talk about some of the other objections to the bill. Another big one is ethics reform. The president and his family members have interests in crypto businesses. This will come as a surprise to nobody who’s been reading the news. Critics say this bill will enrich the people who are most vocally supportive of it. How do you address that?
Chris: First of all, it’s not my area of expertise, but as a citizen, I think there should be ethics rules for government officials. I don’t think those should be exclusive to crypto. I think there should be ethics rules around trading stocks, crypto, and other financial assets.
That seems reasonable to me. That’s number one. Number two, the CLARITY Act, even without specific ethics provisions, will add significant restrictions to anyone in crypto, including disclosure requirements around the risks and holdings of a crypto asset. It will add lockup requirements.
That is an increase in the restrictions applied to anybody, including government officials. Point number three: what has been frustrating from a political point of view is that the specific ethics provision around crypto has been coupled with the topic we’ve been discussing, which is regulating this industry.
This bill, as proposed right now, would be the first bill in U.S. history, I’m told, that regulates an industry and also adds specific ethics provisions for government officials. This is highly unusual. Normally, government ethics rules are done separately, and an industry is regulated separately.
I think this industry is being held to a completely different standard than other industries. That said, I think it’s reasonable for people, politicians, and policymakers to debate and figure out what the ethics rules should be for all financial assets, including crypto.
Right now, there is an active negotiation. I hope there’s a resolution. It’s between the various politicians, not the industry. I hope they can figure something out so that we can move forward, because we want to regulate this industry.
Marc: This bill puts controls on government officials’ use of crypto that are stronger than those that apply to government officials’ stock trading. If you don’t like how government officials trade stocks, this bill puts much stronger controls in place for crypto.
Chris: One other point I would add is that most people think of crypto as a thing you can trade. What they’re missing is that increasingly, like the stablecoins we’ve been discussing, it’s a thing you can use. If the industry is successful, you’ll have more and more use cases and more ways in which it’s embedded into our financial life.
It’ll be normal for a kid to buy tokenized stocks instead of going to a traditional stockbroker. It’s important with these rules to separate trading behavior from use behavior, because it’s important for government officials to have access to modern technology, and I think this is the future of finance.
Robert: Okay, so there are government ethics rules in the bill, but it’s also a separate issue from creating market-structure rules for crypto. Maybe these are separable issues.
Chris: The reality of where the politics are right now is that there are ethics provisions in the current bill. They’re still being negotiated.
I hope they come to a resolution. But from our perspective, after this many years of regulatory gray area and an environment that favors a race to the bottom, the important thing is to get a regulatory framework passed. We think the CLARITY Act, while not perfect, is significantly better than the status quo.
And so I hope those issues are resolved.
Robert: You mentioned stablecoins again. One of the big fights has been over the treatment of stablecoins in this bill. In particular, the banking lobby, most notably JPMorgan Chase, has been very vocal about this.
They are unhappy with the idea that you could earn interest on stablecoin holdings. The fear is that if consumers can earn interest on stablecoins, they’re going to pull their money out of banks and keep it in these other accounts. That’s going to cause deposit flight.
Robert: And they don’t want that to happen. So what’s the state of that debate right now?
Chris: In the bill, I would say the banks got mostly what they wanted: you cannot pay interest on balances. I think the exact language covers anything functionally or economically similar to a bank account, and there are further legal clauses.
What you can do is something more complicated. For example, if somebody completes multiple transactions and a formula is used that isn’t functionally or economically similar to paying interest on a balance, you can give them rewards for using their stablecoin wallet twice a month at Walmart.
Walmart could give them some kind of reward back.
Robert: A credit-card kind of program.
Chris: That’s what the banks had asked for. There was a prolonged discussion — it’s all been in the press — and they seemed to get what they had asked for, but then seemed to want more.
I think going any farther, you start to ban things like Starbucks rewards points. It’s gotten about as far as it can go, and it was a compromise that was somewhat painful for the crypto industry.
But in the context of the broader bill, it still nets out very positively, and we’re very supportive of the overall bill.
Robert: The thing I find so interesting is that this debate has been embodied by Brian Armstrong versus Jamie Dimon. They’re the two leading voices on this. But JPMorgan has a big blockchain unit. They’re working on this stuff. They have tokenized deposits that are live onchain. So it’s interesting that they’re trying to slow-roll CLARITY while also building on this technology.
Chris: These are massive organizations. They’re almost like countries, so there are many different factions and things within JPMorgan.
But as far as I know, every big bank, including JPMorgan, has significant blockchain efforts. If CLARITY passes, a lot of those efforts will roll out in a significant way. We’re way past the point where enterprises dip their toe into new technology and do experimental stuff.
We’re way past that now. We speak to a lot of these organizations regularly. They have real and significant deployments that are going to go live. Some are live, and some are going to go live with greater regulatory clarity. I think they see significant opportunity. You have to remember, the banking system is the way it is for a bunch of reasons, and it’s not necessarily their fault.
These systems are very complex and intertwined with each other, but a lot of the technology is antiquated. It’s a joke in Silicon Valley that banks still have COBOL programmers, but it’s actually true because a lot of them have very old codebases.
In their defense, the systems are so intertwined that you can’t just upgrade your software by yourself. You have to do it all together. One of the things blockchains have done for the financial industry is give them a unified framework where they can all say, ‘Together, let’s move into the 21st century.’
That has solved not just a technology problem, but a coordination problem. If you speak to them, as we have, they’re all very excited about that. The other thing I’ll say is that the simple way to think about blockchains is that they remove layers of mediation. They’re disintermediation machines.
Blockchains remove many of the layers involved in sending money through a wire. We had a case where we funded an international portfolio company. Two weeks later, we couldn’t find the money. This was a significant financing. And it turns out, if you dig into it, there is no international wire system.
You wire to a bank, the bank has some piece of paper that gets moved somewhere else, and they wire another bank. There is no global financial network the way there is a global internet or WhatsApp network. It’s a patchwork of systems. One of the beautiful things about stablecoins is that you’re building something the way you would build it on the internet: one big over-the-top network.
The banks see that opportunity. They say, ‘We can save a lot of money. We can provide better products. We can modernize a whole bunch of things.’ We see across the board that a lot of these organizations are very excited about this, including JPMorgan.
Robert: So this is an opportunity for a big technological upgrade. All these systems you mentioned have parts still running on COBOL, many decades old, and this is a chance to move off them.
Chris: And don’t take it from me. Goldman Sachs CEO David Solomon just came out endorsing the CLARITY Act, along with Fidelity, BlackRock, and a bunch of other major financial organizations.
They all have major efforts. Much of this is public. The most innovative fintech companies, like Stripe, have gone in a big way. You don’t have to listen to me; just look at the news. At the beginning, we were talking about the early Bitcoin days. We’re very far away from that now.
These are very big organizations, and the technology is on the verge of going mainstream with the right regulation.
Robert: There are a lot of endorsements and a lot of support. The one that sticks out for me, which you mentioned earlier, is that a lot of the biggest law-enforcement organizations are for it. I think that’s a major tell. I want to shift to another debate over the CLARITY Act: liability for developers. Former White House cybersecurity official Carole House has raised the concern that developers should be held more liable for the software they write.
She argues that if you don’t hold them liable, it could set a dangerous precedent for other areas of technology, like AI. Marc, I know you spend a lot of your time in the AI world working on this stuff. What do you think about this argument?
Marc: It’s a kill shot to the industry.
It’s impossible. It makes software development impossible, because how can any software developer anticipate the use of the software down the road? You don’t even need to think about this only in terms of software; think about any product. If I run a hotel and a criminal stays at the hotel and plans an operation, does that make me part of the conspiracy?
If I’m an engineer who designed a car and the car is used in a bank robbery, does that make me an accessory to bank robbery? It’s completely insane. If you saddle people who build products used by many people for many reasons with downstream liability for those uses, it kills the industry, which is clearly the goal.
Chris: And just to add to that, it’s important not to conflate things. In some of these court cases, those things have been conflated. To use Marc’s analogy, if you build a car and then knowingly help a criminal, then you are in trouble.
No one is debating that. If you build a piece of software and say, ‘Hey, criminals, come use it,’ and they send you an email asking, ‘How do I do a crime?’ and you say, ‘Here’s how you do a crime,’ that is a crime. There have been cases like that in the software world, and no one is debating it.
What we’re talking about here is making open-source software, whether it’s AI or crypto, for a constructive use case. You’re making a car, a hammer, an AI model, or a blockchain, and then, for example, making it open source.
If you add unlimited downstream liability, whether criminal, civil, or otherwise, how could you ever decide to do that as an open-source developer with that kind of risk? You couldn’t. In the AI world, I think there have been a few bills, including in California, that almost passed and would have imposed basically unlimited downstream liability on AI models.
These people aren’t big companies that can afford to defend themselves. Are five guys in a garage going to take unlimited liability? It’s going to kill it. It’s going to kill the whole thing. It’s going to kill open source.
Marc: This is the thing.
This is a very live issue in AI policy, and people are trying to do this in AI, which I think clearly shows what they’re trying to do. First, open source dies. Right out of the gate, open source dies, because open-source developers are not getting paid to start with.
They certainly can’t take on enormous liability exposure. Even if insurance were available to cover unlimited downstream liability for a product used by millions of people, open-source developers couldn’t afford it.
So open source dies. Because open source dies, academic research dies, because without open source, there is no computer-science research in any of these fields. It’s entirely dependent on open source. It kills computer science as a field, and that’s just the start. Then it kills venture investing.
We obviously can’t invest in a company if it has a million times the level of exposure because somebody does something the company didn’t even know about. Then it kills all the companies, all the startups, and then the big companies, because they can’t take that on either.
It rips right through. The understanding of what it takes to run a business or do anything productive is either completely absent when people make that argument, or they are deliberately trying to kill the industry.
I think they’re deliberately trying to kill the industry.
Robert: Maybe. Let’s move on to one of the final objections, and one I’ve heard most often: that this bill would punch a hole in securities laws. Marc, you mentioned that securities laws have allowed U.S. capital markets to thrive over the past 90-some-odd years and have made the U.S. the envy of the world.
Some people say that if this bill gets through, a company will say, ‘I’m going to tokenize some asset, put it on a blockchain, and that is going to exempt me from SEC oversight and securities law in general.’ What’s your response to that view?
Chris: No. This is in the bill. If you take a stock and tokenize it, that’s a security, and it’s regulated by the SEC like a security. It’s very black and white and clear. The only thing that is different with respect to blockchain regulation is that the CLARITY Act delineates certain situations in which a token like Bitcoin or Ethereum will be regulated by the SEC.
In other cases, it will be regulated by the CFTC. In all cases, it has a federal regulator. Even the last administration implicitly agreed with this framework. Let me walk you through it. Bitcoin, when it started, was presumably created by one person or a group of people — whoever Satoshi was. By definition, when something starts, it’s centralized.
There’s a person behind it with inside information and control. The way the CLARITY Act works, at that point, the token is regulated by the SEC. If someone creates a new blockchain, they have control over it, and there are rules such as lockups.
There are disclosure rules and all the things you expect from securities laws. Over time, when you hit certain thresholds of decentralization, it starts to look more like Bitcoin or Ethereum today, where there is no central actor that controls it or has inside information.
The CLARITY Act designates that the CFTC oversees that token, so it’s regulated as a commodity and not a security. At that point, you still need regulation to make sure people aren’t dumping on the market, cornering the market, or doing all the other things commodities laws regulate.
But it’s a different regulatory regime depending on the nature of the asset.
Robert: So it becomes more like gold or precious metals.
Chris: That’s right. It’s like Bitcoin. Even the last administration said at some point that Bitcoin and Ethereum were sufficiently decentralized to be regulated as commodities.
This has been implicit in court cases and agency decisions from both parties for the last 10 years. All CLARITY does is enshrine it in law and make the definitions specific, so people know exactly where they are and don’t have to go to court to figure it out. It’s taking what has been the consensus across courts and regulators, hard-coding it, and making it specific.
First, existing assets are still securities when you put them on the blockchain. Second, all digital assets have a federal regulator and a framework. Today, if I create a token, the biggest issue is that there are no rules for disclosure.
There are no rules for insider trading or lockups. If the CLARITY Act passes, our effective lockup period — the period in which we can sell — will increase significantly. We’ll invest in someone, they’ll launch a product with a token, and until the criteria for sufficient decentralization are met, there are lockups on venture capitalists, founders, and so forth.
That is how it should be. It’s a smart, risk-based regulatory framework that we think will allow people to build long-term products and build trust in the market. Consumers, investors, and all market participants will have trust in the market because it’s regulated and there’s a framework around it.
And that’s how you build a real industry for the long term.
Robert: We’ve walked through a number of the live fights. All these things are being debated right now. Any one of them could potentially tank this bill. What happens if CLARITY does not pass?
Chris: Number one, we’ll keep working on it, and someday it will pass.
Number two, a lot of these things can be and are being done at the agency level, meaning the SEC, CFTC, Treasury, and so forth. The big difference is that legislation is de facto permanent in a way that agency rulemaking is not.
That’s important both for ensuring that the rules are in place over the long term to protect consumers and for giving the industry confidence. You want to make an investment or build something, and those things can take many years. If you have to build on shifting sands, you’re much less likely to make that investment of time and money.
It’s much harder. You’ve got enough to worry about as an entrepreneur without a shifting maze of regulatory changes. That would be the downside: it would prolong the uncertainty. But I’m optimistic it will get passed in the near future. If it doesn’t, we will keep working on it.
Robert: Some people have this idea that regulation and innovation are opposites. They’re at odds with one another. Marc, you spend a lot of your time on what you call the Little Tech agenda, advocating for startups, builders, and developers. How does all of this fit into that regime, and why is regulation good in this case?
Marc: Political theorists talk about all the different forms of government and debate how well they work. The one I think everybody agrees on is a specific degenerate form of government called anarcho-tyranny.
The term combines anarchy and tyranny. Anarcho-tyranny is essentially a government in which you regulate law-abiding people to death. The anarcho part is that you let the rule breakers go absolutely nuts. The tyranny part is that you regulate or prosecute the good actors to death.
You encourage the criminals and condemn the law-abiding. That was the governance regime under the prior administration. That was the system, and startups felt it very directly.
It happened in two ways. Startups outside the U.S. went wild and did whatever they wanted, which, as we discussed, led to FTX. Startups inside the U.S. got brutally punished, with no route to safety and no way to conduct business safely.
If you were designing from scratch and asking, ‘What’s the worst possible policy? What’s the worst possible approach?’ it would be anarcho-tyranny, which is what we had. What do you actually want? You want predictability, stability, prudence, reasonableness, and protections at the right level.
You want consumer protections and investor protections. You want things to happen in a fair way. But you also want freedom and the ability to innovate. You want the ability to deploy high-quality products that work the way they say they do.
You want customers to be able to trust you, and you want to know you’re going to be in business in a year without being wantonly attacked and destroyed by a system that gives you no way to do it legally. Like a lot of things in life, it turns out there is a middle ground.
There is a centrist position. The centrist position involves the correct level of regulation. Either side of that is devastating: not enough is devastating; too much is devastating. You want to Goldilocks it right in the middle, which is very much what we think CLARITY does.
Robert: Let’s zoom out and talk about what’s at stake for the country and for American leadership. Why is passing the CLARITY Act so important for the country? What will it lead to?
Marc: We would argue this is in the long tradition of American technological leadership, and I would say American technological supremacy. Do you want to be the country that leads the world in technology or not?
There are two parts to that. One is whether you want the technology to exist; some people argue you’re better off without certain technologies. But technologies tend to exist once they get invented. Then, do you want that to happen inside your own country, or somewhere else?
We always make a very strong argument on this: every American citizen, regardless of political position, should want America to be the technology leader in the world. That has many benefits. It has direct economic benefits in terms of the wealth of the country and the ability to pay for all the things we want to pay for.
It has enormous benefits for our security. For the crypto industry to be based in the U.S. is overwhelmingly good for U.S. law enforcement and national security.
If you’re the FBI or any agency of government, you’re dealing with American companies, which is much more straightforward when you need something. It’s good from a security perspective.
I think it’s also good in terms of opportunities for kids. Are your kids able to get educated in state-of-the-art technologies, have lots of career opportunities, and work in those fields? American kids have had that edge on kids all over the planet for a hundred years, and hopefully that continues.
It’s one of these amazing things where we’re so used to America being the technology leader that it almost feels embarrassing to make the argument because it’s so obvious. America has clearly benefited from this for the last hundred years.
In my view, we should all want that to continue for hundreds of years to come.
Robert: Chris, you literally wrote the book on this stuff, on blockchains, Read Write Own. Tell us, what does CLARITY unlock if it passes in one year, two years, or farther into the future?
Chris: As I mentioned before, a simple way to think of a blockchain is as a disintermediation machine.
It lets you build internet services where, instead of having a bunch of organizations in the middle taking a cut of the money along the way, you can build advanced, peer-to-peer internet services. I can send you a dollar. A stablecoin is a simple example.
I can send you a dollar with no intermediary taking a cut. If you send money to Mexico right now using, they charge 8 to 10 percent. With a stablecoin, it’s almost zero because there’s no one sitting in the middle. That’s the simplest case. The use cases that have worked so far have been financial.
We’re seeing stablecoins, stocks, bonds, Treasury bills, lending, and other kinds of financial assets. I think that will be the dominant use case in the next couple of years, so I think we’ll see what I hope is a significant upgrade of the financial system. A lot of the benefits are global.
But I think we take for granted here that we have a high-functioning currency and financial system. This technology makes those financial benefits accessible globally.
Longer-term, as I talk about in my book, you could take this technology and apply it beyond that. You can imagine a world where, if AI agents proliferate the way we hope they will, and the way a lot of people in the AI industry think they will, there could be an internet of billions and trillions of AI agents conducting economic transactions. The natural way they would do that would be through crypto assets.
You can also imagine all sorts of other future use cases, which I allude to at the end of my book: services for creative people, social networks, games, and more.
But for the next couple of years, I think we’ll mostly be focused on this finance 2.0 upgrade that we talked about.
Robert: All right. Time will tell whether policymakers listen to you, heed your advice, and realize that rules are better than no rules, that the time is urgent, and that the benefits will accrue to whoever sets the standards first.
Thank you both for coming on the show.
Chris: Thank you.
Marc: Thanks, Robert.
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