Rethink the cryptographic regulation proposal of A16Z

When the SEC Commissioner, Hester Peirce, issued his statement on February 21, 2025, entitled “There must be some way out of here,” was not read as a typical piece of regulatory comments. The title, a wink to “All Bound The Watchtower” by Bob Dylan, established the tone: frustration, urgency and perhaps even a quiet supplication for clarity.

The sec published A formal information application: an open call for public information on how to determine if encryption assets must be classified and regulated as values. It was the first real invitation in years for the broader cryptographic ecosystem to help shape the rules.

In response, on March 13, the Risk capital giant Andreessen Horowitz (A16Z) presented a proposal built around what he calls a “control framework based on control.” The idea is this: if a blockchain network is open, autonomous and no longer under the control of a central group, then the tokens operating in it should not be treated as values.

It is an orderly concept: clean, structured and apparently based on logic. But while looking for the details and spoke with experts, including Alice Frei, director of Security and Compliance with Outope prA more complicated image began to emerge.

Because while the proposal offers a possible “exit”, not everyone is convinced that it leads to any good place.

The promise and the problem of neutral regulation in technology

One of the pillars of the A16z frame is the idea that cryptographic regulation must be both “neutral” and “neutral in technology.” If a cryptographic token works as a traditional asset, for example, a part or a bonus, it must be treated in the same way under the law.

But Frei sees a disconnection.

“A neutral technology approach sounds right in theory. But it simply does not apply cleanly to blockchain. Cryptography is not a claim of the traditional financial system, it is something fundamentally different. Constantly redefines its own economic and functional properties.”

He pointed out how each important innovation in cryptography introduced completely new economic behaviors: bitcoin with decentralized digital scarcity, ethereum with programmable governance, damage with collective decision making, nft with digital property and defi with financial markets without permits.

“These are not just new wrappers for old assets. They come with completely different risk models, incentive structures and governance challenges. Ignoring that in the name of 'neutrality' means that we are regulating how cryptography looks, not what it is.”

The code is not the only force management markets

Another key argument in A16z's proposal is that if the design of a Token is fully integrated into the code, which means that its economic logic is preprogrammed and autonomous, then its value should not be seen depending on third -party efforts. And if that is true, the Howey test would not happen.

But according to Frei, that logic is not maintained in the current markets.

“The fact that tokens rewards or burns were automated does not mean that the market is … cryptography assessments are driven by much more than the code. Speculation, feeling, macro events: those things move prices in the same way, if not more.”

She pointed out bitcoin's price movements as an example. Its code can be predictable (fixed supply, in half the cycles, but its assessment fluctuates enormously depending on interest rates, institutional adoption and even viral tweets.

“Look at Terra. His total value proposal was a stable autocorous algorithmic: a system designed to maintain its plug in the US dollar through incentives based on the code and automated supply settings. But even that could not resist speculative execution. Once trust was cracked, the algorithm spread by control. Billones fell into days in the days.” The code did not come out. “

The contradiction of 'control based on control'

One of the most debated parts of A16z's proposal is the phrase itself: Decentralization based on control. According to the framework, if the operational, economic and governance control has been sufficiently disseminated, the network must be considered decentralized and, therefore, outside the jurisdiction of the SEC.

But Frei challenged the idea that decentralization can be measured so clean.

“Framing decentralization around the absence of control is already complicated. But when you start building verification lists to define it, it runs the risk of confusing decentralization at the surface level with real autonomy.”

In practice, he explained, most of the so -called decentralized systems still involve central influence points. Developers retain control over updates. The governance sheets often concentrate power in the hands of the first investors. And infrastructure such as exchanges and custodians remain centrally strangulation points.

“True decentralization is a spectrum,” he said. “It is not a yes-o-no verification box. And pretending that the door opens to performative decentralization that looks good on paper but does not actually remain.”

A possible regulatory lagoon

The greatest concern, Frei warned, is the ease with which the proposed framework of A16z could be exploited, especially without rigorous application standards.

“You could have a project that looks decentralized from the outside, but still has experts who pull the strings.”

That could mean distributions of chips that seem wide but are closely coordinated behind the scene. Or governance structures that seem democratic but are designed to channel decision making to some wallets. O Protocols that change control enough time to pass a regulatory test, only to focus again with different names.

“If we are not careful,” he said, “this becomes a guide for regulatory arbitration. Not for transparency.”

Where are we going from here?

To be clear, Frei does not rule out the effort behind the proposal of A16z. Like many in the industry, she welcomes the discussion and agrees that regulatory clarity is urgently needed. But it is skeptical that a framework based on rigid decentralization verification lists can really reflect the complexity of the current cryptography panorama.

“We need a model that respects the innovation that occurs in this space,” he said, “but does not ignore the human, economic and governance dynamics that drives it.”

That means recognizing that technology is not neutral: it changes how assets behave. It means recognizing that markets are emotional, not mechanical. And it means treating decentralization as a moving goal, not a box to mark.

As for the SEC, now faces the difficult task of converting all these comments into a processable policy. If the A16Z framework reaches the final image, one thing is clear: the conversation has only begun.

“The goal is not just to regulate cryptography,” Frei told me while we finished. “It is doing it in a way that protects people, without pretending that this space is something that is not.”

And maybe, just maybe, there is an exit from here, but only if we are honest about where we are starting.