a16z urges U.S. prosecutors to take a fresh look at their regulatory approach to DeFi.
The firm contends that holding Uniswap and other DEXs liable for user conduct they cannot regulate is unfair.
a16z urged the U.S. Department of Justice in a Feb. 4 blog post to stop treating DeFi protocols as liable for misconduct they neither triggered nor have the power to stop.
“Holding people responsible for systems and activities over which they exercise no agency or control leads to perverse outcomes,” the post said.
“Unfortunately, the Department of Justice (DOJ) has ignored this distinction and is attempting to do just that by holding software developers responsible for the actions of third parties that use neutral tools the developers originally created but no longer control.”
a16z argued that the new U.S. administration should prioritize defining “control” properly and lawfully in crypto policy.
a16z stressed that understanding “control” correctly plays a fundamental role in evaluating whether crypto businesses qualify as “money transmitting businesses” and must follow corresponding regulations.
The VC firm highlighted that this distinction helps assess whether crypto businesses meet the criteria for “money transmitting businesses” and the obligations that come with that classification.
As noted on its website, a16z’s investment portfolio covers more than 100 crypto businesses, including Uniswap and other DEXs.
Federal agencies pursued stringent crypto regulations during Joe Biden’s time in office.
The SEC, the primary U.S. financial regulator, took more than 100 enforcement measures against companies in the crypto space.
On January 20, President Donald Trump began his term, promising to make the U.S. the leading global center for crypto and appoint industry-friendly heads to federal agencies.
U.S. prosecutors have attempted in the past to charge cryptocurrency developers for actions carried out by others on their platforms.
In its January post, a16z made an analogy, saying it’s like holding a car maker accountable for a crash resulting from the driver’s negligence.
“It wouldn’t make sense to hold carmakers responsible for the bad driving of their vehicles’ users,” a16z said. “These principles seem obvious in the case of automobiles, but they are very much still at issue in the digital sphere.”
a16z noted that, in contrast to centralized platforms like Coinbase, DEXs such as Uniswap do “not retain control over the protocol or have the ability to control how third parties use it.”
Understanding this distinction helps “establish a clear and fair foundation for crypto entrepreneurs and developers to build in the United States,” the VC said.
