Andreessen Horowitz's Plan to Dominate Crypto

WASHINGTON — There was luncheon astatine a French bistro adjacent Congress with Senator Kirsten Gillibrand of New York, and a gathering with immoderate of President Biden’s apical economical aides. Then came a backstage meal with a large fiscal regulator.

The taxable was ever the same: “how to triumph the future” successful the planetary contention for cryptocurrency dominance — astatine slightest from the position of Andreessen Horowitz, the Silicon Valley task superior steadfast that dispatched a squad of Washington insiders to marque its lawsuit during a caller five-day lobbying blitz.

At a infinitesimal erstwhile exertion companies person a atrocious odor successful Washington and arsenic the fast-evolving crypto manufacture is drafting expanding scrutiny from lawmakers and regulators, Andreessen Horowitz is pursuing a peculiarly audacious plan: to some ain large chunks of the emerging satellite of integer currencies and person a manus successful penning the rules for however it volition operate.

To propulsion its agenda, the steadfast has hired an array of experienced authorities hands. They see Tomicah Tillemann, a erstwhile adjutant to Mr. Biden erstwhile helium was a senator; Katie Haun, a onetime Justice Department cryptocurrency prosecutor; and Brian D. Quintenz, who joined the effort conscionable days aft leaving the Commodity Futures Trading Commission, a crypto regulator.

Already, Andreessen Horowitz — besides known by the nickname A16Z — has funded astatine slightest 50 crypto start-ups, with respective caller deals announced weekly, making it the largest crypto capitalist globally.

This summertime it acceptable up a caller $2.2 cardinal concern money to nett disconnected the accelerated maturation of cryptocurrency and the technological and fiscal architecture down it.

It is besides a large capitalist successful Coinbase, 1 of the largest cryptocurrency exchanges, on with a fig of newer start-ups. The steadfast has brought connected truthful galore radical with manufacture expertise that the hiring spree has go a moving gag connected Twitter.

Their regulatory connection highlights issues with wide bipartisan support: overcoming China’s caput commencement successful integer currency and payments, reclaiming America’s relation arsenic the starring exertion innovator and expanding economical opportunity.

“To the grade policymakers tin get entree to bully information, that is going to assistance them lick their problems and besides alteration the adjacent procreation of the net to flourish successful a mode that’s going to beryllium bully for us,” Mr. Tillemann said. “That’s mutually beneficial.”

But the proposals, extracurricular experts who person examined them say, are acold much astir self-interest than societal oregon nationalist benefits.

“This is simply a beauteous nakedly transparent effort to payment their bottommost line,” said Lee Reiners, a erstwhile supervisor of systemically important fiscal institutions astatine the Federal Reserve Bank of New York.

Draft authorities A16Z is circulating would springiness the companies it has invested successful a limb up by exempting related entities from definite taxation reporting, user extortion and anti-money-laundering requirements.

“This is simply a classical lawsuit of asking the fox to plan the henhouse,” said Rohan Grey, a concern lawyer and instrumentality schoolhouse prof who has advised legislature Democrats connected authorities to modulate integer payments that is pending successful the House. “They accidental things successful a mode that sounds reasonable, but it involves them fundamentally giving up precise small successful the nationalist interest.”

Rachael Horwitz, a spokeswoman for A16Z, said the institution welcomed this debate. “We are making large bets connected founders and ideas with the imaginable to signifier the aboriginal successful the anticipation that they’ll topple the gatekeepers and middlemen of the past,” she said.

From its inception successful 2009, Andreessen Horowitz has trumpeted a antithetic attack to task capital.

It promoted the cult of the laminitis — the thought that the hard-driving entrepreneurs who commencement a institution are champion positioned to pb — and alternatively of conscionable supplying superior it offered assistance with recruiting, income and marketing.

It was a doctrine rooted successful idiosyncratic experience. At 22, arsenic a caller postgraduate successful machine subject from the University of Illinois astatine Urbana-Champaign, Mr. Andreessen helped make Netscape, the archetypal fashionable web browser, successful 1994. Mr. Horowitz joined Netscape astatine the commencement of a warfare with Microsoft, which dominated the idiosyncratic computing marketplace and deliberately constricted entree to the browser. Netscape was sold to AOL for $4.2 billion successful 1998, and a twelvemonth later, the brace started an aboriginal cloud-computing institution that was sold to Hewlett-Packard for $1.6 cardinal successful 2007.

As task capitalists, Mr. Andreessen and Mr. Horowitz aggressively raised wealth and outbid rivals, taking aboriginal stakes successful Facebook, Twitter, Pinterest, Airbnb and Slack. Mr. Andreessen defined the attack arsenic “us versus the world.”

Andreessen Horowitz models itself connected the Hollywood endowment absorption steadfast Creative Artists Agency, which embraced the outsize ambition of representing each Hollywood star.

“The extremity was fundamentally monopoly,” 1 of C.A.A.’s founders, Michael Ovitz, said successful an April treatment connected the A16Z-backed audio app Clubhouse with Mr. Andreessen and Mr. Horowitz, who brought him connected to explicate his agency’s power connected them.

Andreessen Horowitz’s archetypal cryptocurrency concern was successful precocious 2013 with a $20 cardinal archetypal bet connected Coinbase. Soon after, Mr. Andreessen wrote successful an sentiment article successful The New York Times that Bitcoin, the world’s archetypal cryptocurrency, heralded a seismic technological shift, connected par with the PC successful the 1970s and the net successful the 1990s.

“Bitcoin offers a sweeping vista of accidental to reimagine however the fiscal strategy tin and should enactment successful the net era,” Mr. Andreessen wrote.

Coinbase went public successful April, with Andreessen Horowitz’s involvement valued astatine $11 billion.

In 2018, the steadfast started its archetypal money dedicated to crypto investments, raising $350 million. It was a abstracted ineligible entity to comply with securities rules that bounds task superior firms’ allocations to riskier investments, similar cryptocurrency businesses.

But seeing crypto’s increasing potential, Andreessen Horowitz transformed from a task superior steadfast into a registered concern advisor successful 2019 — a costly determination that subjected it to greater regulatory oversight but allowed it to prosecute crypto deals unfettered.

The steadfast created a 2nd $515 cardinal crypto money successful 2020 and a 3rd $2.2 cardinal money this year.

Delivering important returns connected each this investment, executives astatine A16Z rapidly realized, would necessitate playing a large relation successful shaping rules for these companies.

Turning to Washington

The prima was mounting arsenic the dependable of subject helicopters occasionally drowned retired the chatter astatine an A16Z cocktail enactment on the Washington waterfront. The gathering featured astir of the firm’s precocious hired argumentation team, milling astir connected a patio arsenic they nibbled connected crab cakes and sipped drinks, wrapping up their five-day lobbying push.

No different crypto subordinate successful the Washington power crippled has a lineup that rivals the squad A16Z has assembled.

She joined A16Z in 2018 and this summertime brought successful Mr. Tillemann, who is present the team’s main advocator successful Washington.

Other caller members see William H. Hinman, the erstwhile manager of the corp concern part astatine the Securities and Exchange Commission; Brent McIntosh, a erstwhile Treasury nether caput during the Trump administration; and Jai Ramaswamy, who ran the Justice Department’s wealth laundering part during the Obama administration. Each of them, on with Mr. Quintenz, who was an outspoken booster of crypto portion astatine the C.F.T.C., participated successful briefings with fiscal regulators, members of Congress oregon White House officials.

But nary of them are registered arsenic lobbyists. Mr. Tillemann argued that is not what they were doing successful Washington. “We don’t deliberation we request a lobbying squad close now, and we don’t presumption this arsenic a lobbying effort,” helium said, calling it “an accidental to enactment constructively with policymakers to lick problems of communal concern.”

The steadfast claims its representatives bash not request to registry arsenic lobbyists due to the fact that of a loophole limiting the registration request to those who walk at slightest 20 percent of their clip lobbying.

During their pitches successful Washington, the A16Z squad members often talked astir their committedness to “democratizing” the internet. They said the decentralized quality of cryptocurrency would marque it easier for much radical to summation entree to loans and investments via crypto platforms specified arsenic Compound and Uniswap that Andreessen has backed.

But Mr. Reiners and Mr. Grey, lawyers who person intimately work A16Z’s regulatory proposals, and Dan Awrey, a Cornell Law School prof and fiscal regularisation adept who has advised planetary fiscal institutions, said they were troubled by galore cardinal elements of the plan. They said it was self-interested and would make pathways to evade existing regulations, leaving consumers vulnerable.

They pointed to a proviso A16Z included successful draught authorities that would make an exemption from the Investment Company Act of 1940, which subjects companies to oversight by the S.E.C..

Certain crypto start-ups that A16Z is funding are being organized astir a caller benignant of entity called a decentralized autonomous organization, oregon DAO, which would beryllium exempt from the enactment nether A16Z’s plan.

This exemption is warranted, A16Z argues, due to the fact that DAOs are supposedly tally by the assemblage of crypto users alternatively than for-profit executives. But the fiscal backers of these platforms inactive basal to marque sizeable profits due to the fact that the founders of the crypto start-ups often ain a sizable stock of the peculiar crypto tokens that can, successful immoderate cases, assistance voting powerfulness to assistance govern these platforms.

The A16Z connection would besides bounds the quality of the Consumer Financial Protection Bureau to modulate DAOs beyond requiring definite disclosures. It alternatively proposes that the national government see relying connected an industry-created “self-regulatory organization” to specify and enforce however consumers are treated. And it would springiness preferential taxation attraction to DAOs, limiting accusation they person to crook over to the Internal Revenue Service and making alleged subordinate dues that they collect taxation exempt.

The nett effect of A16Z’s proposals, experts said, would beryllium to unfastened loopholes that the steadfast and different fiscal manufacture players, possibly adjacent hedge funds, could usage to reorganize themselves successful a mode that could undermine the fiscal regulatory system.

“In the sanction of democratizing finance, what I americium seeing is simply a crippled of three-card monte wherever they are moving balls astir hoping radical don’t recognize the crippled is rigged,” Mr. Awrey said. “But what they are calling for present is the wholesale exemption from immoderate of the astir important capitalist extortion laws successful the United States.”

In a 10-page effect the institution provided to The Times, 1 A16Z lawyer wrote that “we invited clarifying feedback connected however to tighten this up to debar creating a broader exemption than was intended.”

The White House and lawmakers declined to sermon their meetings with the firm’s representatives successful detail, but companies successful the manufacture said Andreessen Horowitz’s efforts successful Washington were portion of what made it an charismatic concern partner.

“The instrumentality is the law, but it’s conscionable a question of however it is applied,” said Ian Lee, 1 of the founders of Syndicate, a crypto start-up that chose A16Z to pb its concern circular successful June. “It’s a large crushed wherefore partnering with Andreessen Horowitz and its ineligible and regulatory squad made a batch of sense.”