a16z writes to the U.S. Department of the Treasury seeking a GENIUS Act exemption from decentralized stablecoin regulation

On November 4, 2025, Andreessen Horowitz’s (a16z) crypto division officially sent a letter to the U.S. Department of the Treasury, requesting clear differentiation between decentralized stablecoins and payment stablecoins in the newly proposed GENIUS stablecoin bill. The letter emphasized that assets like LUSD, collateralized on Ethereum and operated autonomously via smart contracts, should not be restricted under Section 3(a) of the bill. It also recommended adopting the decentralized framework outlined in the 2025 Digital Asset Market Clarity Act.

Additionally, a16z proposed using privacy-preserving encryption technologies to develop “decentralized digital identities” as tools against illegal financial activities, arguing that this approach can balance national security with citizen freedoms. If adopted, this initiative could pave the way for a more relaxed regulatory environment for decentralized financial innovation.

a16z Calls for Clear Exemption for Decentralized Stablecoins in the GENIUS Bill

In an open letter submitted to U.S. Treasury Secretary Janet Yellen on November 4, a16z crypto detailed their response to the Treasury’s proposed rules for the GENIUS stablecoin bill. As the first federal-level regulatory framework for stablecoins in the U.S., the bill aims to establish issuance standards for “payment stablecoins” and mandates regulators to address consumer protection, illicit finance risks, and financial stability.

a16z acknowledged that the GENIUS bill represents a significant step forward for digital finance but pointed out that its definition of “decentralized stablecoins” is vague, which could lead to innovative projects that should be exempt being mistakenly regulated. Citing LUSD within the Ethereum ecosystem—supported by over-collateralized assets and operated via autonomous smart contracts—illustrates that such stablecoins lack a central issuer and should not fall under the bill’s “issuer” category. a16z urges the Treasury to explicitly clarify that decentralized stablecoins are outside the scope of Section 3(a), which currently restricts U.S. payment stablecoin issuance to licensed entities.

Market-wise, if the proposal is adopted, it could accelerate the compliance process for decentralized stablecoins. Currently, the global stablecoin market exceeds $1.5 trillion, with non-custodial stablecoins like LUSD representing a small share. Clear exemptions would attract more developers to explore decentralized finance within compliant frameworks and reduce the risk of projects migrating overseas due to regulatory uncertainty.

Decentralized Digital Identity: An Innovative Solution Against Illicit Finance

a16z crypto’s head of regulatory affairs, Michelle Coff, further responded to initiatives by the Financial Crimes Enforcement Network (FinCEN), proposing “decentralized digital identities” as tools to combat illegal crypto transactions. Coff emphasized that such identity systems, based on zero-knowledge proofs and multi-party computation, can verify user authenticity while minimizing exposure of personal data. Compared to traditional identity systems, decentralized digital identities empower users with data control, reduce the risk of centralized server attacks, and mitigate privacy concerns related to surveillance. For example, reusable digital credentials can help financial institutions lower anti-money laundering compliance costs and improve fraud detection.

This proposal aligns with current global regulatory trends. As cryptocurrencies increasingly penetrate cross-border payments and financial inclusion efforts, countries are seeking to balance innovation with risk management. Decentralized identity systems have already seen progress in Singapore and the European Union’s digital identity pilots and could become core components of next-generation financial infrastructure.

Key Elements of a16z’s Proposed Framework

• Legal Basis: Referencing the 2025 Digital Asset Market Clarity Act for decentralization standards
• Technical Example: Ethereum ecosystem’s LUSD stablecoin’s smart contract autonomous architecture
• Regulatory Exemptions: Node validation, non-custodial wallet development, and transaction execution activities
• Identity Verification: Integration of zero-knowledge proofs and multi-party computation techniques

The Global Race and Market Opportunities in DeFi Regulation

a16z’s initiative is not isolated. In recent years, countries like the EU with its Markets in Crypto-Assets (MiCA) regulation and the UK’s “Digital Securities Sandbox” have explored differentiated regulation for decentralized assets. The implementation of the GENIUS bill in the U.S. is viewed as a pivotal moment for bringing stablecoins from the regulatory gray area into mainstream finance. However, regulatory arbitrage remains a concern—overly strict restrictions on decentralized stablecoins in the U.S. could push projects to jurisdictions like Dubai or Switzerland.

From an industry perspective, if exemptions for decentralized stablecoins are approved, it would benefit ecosystems like Ethereum and Solana. Currently, over $30 billion is locked in decentralized stablecoin protocols on Ethereum, and emerging chains like Monad plan to integrate similar assets. Institutional investors might also increase allocations through compliant channels, further boosting the overall valuation of decentralized finance.

Expert Insights: Clearer Regulations Are Key to Scaling DeFi

Many industry analysts believe that a16z’s suggestions reflect the crypto sector’s urgent need for predictable regulation. Jack Chelvinsky, Chief Policy Officer at the Blockchain Association, noted, “The flaw in the GENIUS bill is its broad definition of ‘issuer’ as a ‘person,’ and whether smart contracts qualify as ‘persons’ remains legally uncertain.” He recommended that regulators consider models like the UK’s Financial Conduct Authority’s (FCA) temporary licensing regime to provide transitional pathways for experimental projects.

On the market front, investors should monitor tokens related to decentralized stablecoins. For example, Liquity’s LUSD protocol has recently seen a 12% increase in total value locked (TVL), and MakerDAO’s DAI is exploring multi-chain expansion. In the short term, positive regulatory news could boost trading volumes, but market volatility may increase ahead of policy implementation.

Conclusion

a16z’s advocacy for exemptions in the GENIUS bill signifies a deepening dialogue between the crypto industry and regulators. If successful, such exemptions could protect innovation and reshape the global stablecoin landscape. Meanwhile, the proposal of privacy-enhanced digital identities offers a new paradigm for balancing financial security with individual rights. On the path toward mainstream adoption, regulatory clarity combined with technological innovation remains crucial for industry breakthroughs.