a16z Policy Head: How Should the U.S. Government Seize the Web3 Opportunity?
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a16z Policy Head: How Should the U.S. Government Seize the Web3 Opportunity?
This institutional action plan aims to help U.S. regulators take steps in the right direction.
Navigating Web3 tides with focused insightsAuthor: Brian Quintenz, Head of Policy at a16z
Translation: Luffy, Foresight News
For any government, crafting effective policy for emerging technologies can be challenging—especially when the technology doesn't fit within traditional regulatory frameworks. This is precisely the case with Web3, where decentralized systems are inherently incapable of complying with conventional legal requirements. Current rules often assume the existence of centralized intermediaries, which typically do not exist in Web3. These regulations aim to mitigate risks such as conflicts of interest and information asymmetry arising from trusted, centralized entities; however, applying such rules to decentralized systems may force them to re-centralize, stifle innovation, undermine Web3’s transformative potential, and ultimately harm users.
Decentralization has already reshaped social media, identity management, creative industries, and finance. Despite being the most crypto-adoption-ready developed nation, the U.S. lacks an effective regulatory regime for decentralized crypto assets.
While there has been some progress (such as FIT21 and Wyoming’s DUNA), significant legislative advancements are still needed to provide regulatory clarity, properly incentivize decentralization, and protect consumers. Regardless of who wins the U.S. election, federal departments and agencies can take several simple steps—without requiring new legislation—to help America seize the opportunities presented by Web3.
Below are seven of the most important actions. While this list is not exhaustive, it should help guide U.S. policymakers and other stakeholders toward the right direction.
1. All Relevant Agencies Should Include Promoting Competition and Innovation in Their Mandates
As Marc Andreessen and Ben Horowitz have noted, the cornerstone of America’s technological dominance has always been startups. They observed: “Startups are groups of brave misfits and outcasts coming together with dreams, ambition, courage, and unique skills to create something new for the world—a product that improves people's lives, and a company that might go on to create even more innovations in the future.” Edison, Jobs, and Musk represent just a few of the pioneering startup leaders in American history. The U.S. lead in startups stems largely from a combination of frontier spirit, work ethic, rule of law, strong capital markets, education systems, and public investment in R&D—all fostering competitive innovation.
Although startups can redefine existing industries and sometimes even create entirely new ones, they face numerous disadvantages from the outset. Compared to large firms with vast user bases and financial resources, startups often struggle to gain traction. Established players may enjoy another advantage: influencing governments to act against startup competitors or advocating for costly regulations that create “regulatory barriers to entry.”
If startups are the lifeblood of American innovation, then all agencies should formally incorporate promoting competition and innovation into their mandates, ensuring these goals become top priorities.
2. The SEC Should Engage in Formal Rulemaking and Provide Clear Guidance on Digital Asset Classification
Imagine how difficult it must be for ordinary users to understand digital asset transactions when even staff at the U.S. Securities and Exchange Commission (SEC) struggle to define which crypto asset transactions constitute securities. Due to this lack of clarity, the U.S. lacks a functioning digital asset market. To fix this, the SEC should engage in formal rulemaking to provide clear guidance to market participants on whether specific digital asset transactions involve the sale of securities. Taking this step would have far-reaching positive effects. Yet since 2019, the SEC has resisted calls to issue public guidance, instead opting for enforcement-driven regulation—an approach that backfires by harming businesses, confusing investors, and disrupting everyday users.
3. Eliminate Intermediary Requirements Where Blockchain Removes the Need for Third Parties
A key innovation of blockchain is enabling transactions without third-party, centralized intermediaries. However, current rules designed for traditional markets presuppose the existence of such intermediaries—brokers, clearinghouses, custodians, and market makers.
Regulation is appropriate when centralized firms perform these roles. But treating decentralized systems the same way hinders their ability to fulfill similar functions and cuts off the benefits they offer. This amounts to “technological discrimination.” Disintermediated services can reduce risks (like counterparty risk) and costs (like transaction fees), while increasing efficiency and fostering competition. If blockchain technology eliminates the need for intermediaries, regulators should eliminate intermediary requirements accordingly.
Likewise, by updating existing rules, agencies can help blockchain transform our financial system. If current regulations were adapted to on-chain transactions, cross-border payments, settlement of digital securities and commodities, and derivatives markets could all become significantly more efficient.
4. Increase Transparency in Agency Decision-Making and Improve Communication with Private Sector Stakeholders, Civil Society, Academia, and the Public
Greater transparency in agency decision-making is essential for sound crypto policy. It builds trust, ensures accountability, and enables public participation. Open dialogue with stakeholders leads to more effective regulatory outcomes: companies collaborate with regulators to explore solutions, ensuring agencies fully understand dynamic market structures, business objectives, operations, and risks. When agencies openly share their reasoning, it also prevents undue influence from special interests and helps ensure fairness in policymaking.
Critically, agencies should encourage—or at least permit—educational meetings between companies and regulators without fear of retaliatory enforcement actions. This would support what I call “regulation through dialogue,” rather than regulation through enforcement.
Transparency allows stakeholders—including innovators and the general public—to provide feedback, leading to smarter, more inclusive approaches to crypto regulation.
5. Allow White House Staff and Federal Agency Employees to Use Cryptocurrency
A 2022 legal advisory notice from the U.S. Office of Government Ethics prohibits employees “holding cryptocurrency or stablecoins” from participating in policymaking related to crypto that could affect the value of their holdings. This applies to all White House staff and federal agency employees, and specifies that the minimal-involvement threshold applicable to securities does not apply to crypto.
Maintaining ethical standards around conflicts of interest is certainly important for building public trust in government. But barring government officials responsible for crypto policy from using crypto is akin to banning Department of Transportation officials from riding trains or airplanes. Government employees tasked with regulating crypto should be allowed to use it.
6. Provide Specialized Training for Government Employees
Beyond benefiting from direct engagement with crypto, government employees would greatly benefit from specialized training in blockchain technology. Such knowledge is critical for understanding decentralized innovation, making informed policy decisions, and effectively allocating enforcement resources. As decentralized systems reshape finance, cybersecurity, and beyond, officials need to understand key concepts like blockchain analytics, smart contract design, and decentralized governance. This training can help officials leverage blockchain’s transparency to better achieve regulatory goals. It will also help the government craft fair regulations that support blockchain-driven innovation and ensure public initiatives align with principles of decentralization and public interest.
Partnerships are ideal for this purpose. By collaborating with industry, research institutions, and universities, governments can provide employees with access to cutting-edge research and expertise. Where such initiatives already exist—like the SEC’s Strategic Center for Innovation and Financial Technology—agencies should deepen collaboration with innovators, developers, and builders of new technologies.
7. Support Private-Sector Blockchain Research and Use Zero-Knowledge Proofs to Better Protect Sensitive and Proprietary Information
U.S. government agencies should also promote research into open-source, permissionless blockchain systems to safeguard national security. Many of our adversaries, including Russia, are developing state-backed blockchain protocols that, if adopted globally, could give hostile governments access to personally identifiable information and sensitive financial and operational data. U.S. agencies should support blockchain research to help develop private-sector solutions that reduce the risk of falling behind countries that don’t share Western values in the crypto domain.
One area where government can benefit from R&D is privacy-enhancing technologies like zero-knowledge proofs (ZKPs). Compared to other privacy tools, ZKPs represent a major advancement in privacy technology, giving users maximum privacy and control.
ZKPs can directly benefit U.S. government agencies by enhancing information security and privacy. Blockchains provide decentralized, secure ledgers that protect data across multiple nodes. Encryption and decentralized storage reduce the risk of hacking and service outages. ZKPs allow parties to verify the authenticity of information without revealing the underlying data—enabling only necessary credentials or authorizations to be shared, without exposing sensitive details. For example, proving someone is above a certain age threshold without disclosing their actual birth date.
Combining blockchain with zero-knowledge proofs can enhance data integrity, increase trust in digital systems, and protect confidential information across various government operations. Agencies can also use decentralized systems to improve data transfer, communications, and more. Therefore, agencies should consider adopting blockchain and zero-knowledge proofs to secure sensitive information and boost efficiency.
Conclusion
The U.S. needs to do much more to build an effective crypto regulatory framework—one that encourages decentralization while protecting consumers. In the meantime, we hope this list of agency-level actions can help U.S. institutions and other stakeholders move in the right direction without waiting for new legislation. Perhaps, while we wait, staff might finally be allowed to actually use cryptocurrency.
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