A16z Calls for Clarity on GENIUS Act’s Scope for Decentralized Stablecoins

A16z urges U.S. Treasury to clarify whether decentralized stablecoins are subject to the GENIUS Act.

The firm suggests adopting a decentralization framework similar to the 2025 Digital Asset Market Clarity Act.

A16z proposes decentralized digital identity systems to combat illicit finance while preserving privacy.

In a letter to the U.S. Treasury, A16z Crypto, the crypto-focused arm of venture capital firm Andreessen Horowitz, urged officials to provide greater clarity on the GENIUS Act, a key piece of legislation regulating stablecoins. A16z called for a distinction between decentralized and payment stablecoins to ensure the former are not subject to unnecessary oversight.

GENIUS Act Overview and A16z’s Concerns

The GENIUS Act, which was signed into law earlier this year, created a system to regulate “payment stablecoins.” The law takes care of issues regarding consumer protection, financial stability, and the prohibition of illegal activities within the stablecoin market, among others. On the other hand, the ambiguity around the classification of decentralized stablecoins is still present within legislation.

A16z pointed out that decentralized stablecoins, such as Ethereum collateral-backed LUSD, operate without a central issuer. These digital assets are governed by autonomous smart contracts, with no central authority controlling the issuance. As such, A16z argued that these assets should not fall under the regulations outlined in Section 3(a) of the GENIUS Act. This section limits stablecoin issuance in the U.S. to authorized issuers, but decentralized stablecoins do not involve a “person” issuing them, according to the firm.

In its letter, A16z recommended adopting a decentralization framework similar to the one proposed in the 2025 Digital Asset Market Clarity Act. This framework would exempt certain activities, such as transaction validation, node operation, and the development of non-custodial wallets, from intermediary regulations. By clarifying these distinctions, the Treasury would create a more favorable regulatory environment for decentralized stablecoins.

Decentralized Digital Identity for Illicit Finance Prevention

A16z’s response to the Financial Crimes Enforcement Network (FinCEN) request for innovative methods to fight illicit finance in the digital asset space, besides settling down issues with stablecoin regulation. The company recommended the use of decentralized digital identity systems as a means to enforce national security while ensuring individual privacy.

A16z pointed out that the decentralized digital identity being created with privacy-focused cryptographic methods would give individuals the power over their personal data. This method would limit the possibilities of cyberattacks and would also block the possibility of surveillance overstepping its bounds. In addition, it would assist institutions in their fight against fraud, lower their operating costs, and improve the detection of illegal activities all the while keeping the information private.A letter from A16z to the U.S. Treasury emphasizes the necessity of clarification of the GENIUS Act’s application to guarantee that decentralized stablecoins are not unintentionally caught up in the regulations designed for payment stablecoins. Additionally, the firm promotes the use of decentralized digital identity systems in the fight against fraud in the financial sector, stating that such systems would protect individual privacy.