What about the exit and the road? Rethinking A16Z’s cryptocurrency proposal

When SEC Commissioner Hester Perth issued a statement on February 21, 2025 entitled “One way out of here,” he didn’t read like a typical regulatory commentary. The title is a nod to Bob Dylan’s “All and the Watch Tower,” setting a tone that is a quiet plea for grievance, urgency and perhaps even clarity.

The SEC has published a formal request for information. This is a public public call on how to determine how crypto assets are classified and regulated as securities. This was the first real invitation to help a broader crypto ecosystem shape the rules.

In response, on March 13, venture capitalist Giant Andreessen Horowitz (A16Z) submitted a proposal built around what is called a “control-based decentralization framework.” Here’s the idea: If the blockchain network is open, autonomous and not under the control of a central group, the tokens operating on it should not be treated as securities.

It’s a neat concept. It is clean, structured and appears to be based on logic. But when I delved into the details and spoke to experts, including Alice Frey, the head of security and compliance in the first PR, more complicated drawings began to appear.

Because the proposal offers a potential “path” but not everyone is sure it’s fine everywhere.

Promises and issues of technology-neutral regulations

One of the pillars of the A16Z framework is the idea that cryptographic regulations should be both “met-neutral” and “technical neutral.” If crypto tokens function like traditional assets (for example stocks or bonds), they should be treated the same under the law.

But Frey is watching the cutting.

“In theory, the technology-neutral approach sounds fair. But it doesn’t apply cleanly to blockchain. Cryptocurrency is not a reskin of traditional financial systems. It is fundamentally different. It constantly redefines its own economic and functional properties.”

She pointed to how each major Crypto innovation introduced whole new economic behaviours, including Bitcoin with decentralized digital rarity, Ethereum with programmable governance, DAOS with collective decision-making, NFT with digital ownership, and Defi with permitted financial markets.

“These are not new wrappers of old assets. They have a completely different risk model, incentive structure, and governance challenges. Ignoring it by the name of “neutrality” means regulating what the code looks like. ”

Code is not the only power

Another important argument in the A16Z proposal is that if the token design is fully embedded in the code (where it means that its economic logic is pre-programmed and autonomous), its value should not be considered to be dependent on third-party efforts. And if that’s true, it won’t pass the Howey test.

But according to Frei, that logic is unbearable in today’s market.

“Just because rewards and token burns are automated doesn’t mean the market is. Cryptographs are much more driven than code. Inferences, emotions, macro events – these move prices the same.”

She pointed out the movement of Bitcoin prices as an example. That code may be predictable, with fixed supply, half cycles – but its ratings fluctuate heavily based on interest rates, institutional adoption, and even tweets from the virus.

“Look at Terra. The whole value proposition was self-correction, algorithmic Stablecoin. It was a system designed to maintain PEG in the US dollar through code-based incentives and automated supply adjustments.

Contradictions of “control-based decentralization”

One of the most discussed parts of the A16Z proposal is the phrase itself. Control-based decentralization. According to the framework, networks should be considered decentralized if operational, economic and governance management is fully spread, and therefore lies outside the jurisdiction of the SEC.

However, Frey challenged the idea that decentralization can be measured very neatly.

“Framing decentralization on lack of control already requires caution. However, if you start building a checklist to define it, you risk mistaken surface-level decentralization due to actual autonomy.”

In fact, she explained that most so-called distributed systems still contain central influence points. Developers retain control over the upgrade. Governance tokens often focus their strength in the hands of early investors. Infrastructures like exchanges and administrators remain centralized chokepoints.

“True decentralization is the spectrum,” she said. “It’s not a YES or NO-NO-NO -NO checkbox. And pretending to open the door to performance decentralization, which looks good on paper but is unbearable in reality.”

Potential regulatory loopholes

According to Frei, the greater concern is how easily the proposed framework for A16Z will be utilized, particularly without strict enforcement standards.

“You could have projects that look decentralized from the outside, but where insiders pull the string.”

It may mean a wide-looking token distribution, but tightly adjusted behind the scenes. Or a governance structure that looks democratic but is designed to inject decision-making into some wallets. Or, it is a protocol that shifts control long enough to pass regulatory tests, only for later re-aggregation with a different name.

“If we don’t pay attention, this will be a guidebook for regulatory rulings. Not for transparency.”

Where do you go from here?

To be clear, Frei does not dismiss the efforts behind A16Z’s proposal. Like many in the industry, she welcomes discussions and agrees that regulatory clarity is urgently needed. However, she is skeptical that a framework based on a rigid decentralisation checklist can truly reflect the complexity of today’s crypto landscapes.

“We need a model that respects the innovation that is happening in this space,” she said.

That means accepting that technology is not neutral – it changes the behavior of assets. That means realizing that the market is emotional rather than mechanical. And that means treating decentralization as a moving target, not a box to check.

With regard to the SEC, we face the difficult task of turning all this feedback into a practical policy. One thing is clear whether the A16Z framework will be the final photo or not. The conversation has just begun.

“The goal isn’t just to regulate cryptography,” Frey told me as we wrapped it around. “It’s about doing it in a way that protects people. It’s not about pretending to be this space.”

And maybe, just maybe, there’s a way out of here, but only if we’re honest about where we started.