Four Years After FTX, Washington Still Hasn’t Fixed Crypto — and the Next Collapse Could Be Far Worse
As the Senate nears a pivotal vote on the CLARITY Act, a16z policy chief Miles Jennings warns that congressional inaction is becoming the industry’s greatest risk.
Nearly four years have passed since the collapse of FTX triggered one of the most dramatic financial implosions in modern American history — a multibillion-dollar fraud that wiped out customers, destroyed investor confidence, and left a nascent industry struggling to prove it deserved a place in the mainstream economy. Yet according to Miles Jennings, Head of Crypto Policy at Andreessen Horowitz (a16z), Washington has failed to do the structural work necessary to ensure that such a catastrophe cannot happen again. Congress, in Jennings’ assessment, has left the cryptocurrency market dangerously exposed: rules are fragmented, legal categories are murky in the extreme, and too many platforms continue to operate in the shadows between regulatory jurisdictions. Jennings has now issued an unmistakable message to the Senate: take up the CLARITY Act, advance it, and give the digital asset sector the foundational safeguards it has never had. If lawmakers choose inaction instead, he warns, the next major crisis could make the FTX disaster look like a minor episode.
The historical context makes the warning all the more compelling. When FTX collapsed in November 2022, it was not merely the bankruptcy of a prominent exchange. It was the sudden, public revelation of a scheme in which billions of dollars in customer deposits were quietly diverted to support founder Sam Bankman-Fried’s trading ventures. From a valuation of roughly $32 billion to insolvency in a matter of days, the exchange’s fall sent shockwaves across global markets, erased enormous sums of ordinary investors’ money, and triggered a wave of promises from Washington that meaningful regulatory reform was imminent. Agencies launched investigations. Lawmakers conducted high-profile hearings. For a brief, intense period, it appeared that the push for a coherent federal crypto framework would finally gain the momentum it desperately needed. That moment, however, faded. Jurisdictional disputes between agencies, ideological disagreements over the proper scope of regulation, and the shifting priorities of a divided Congress conspired to keep the issue stalled. Jennings, who has spent years studying the intersection of technology and financial law, has not forgotten the urgency of that moment — and he is increasingly concerned that the window it opened has been allowed to close.
The Root of FTX’s Collapse Wasn’t Innovation — It Was an Absence of Guardrails
For all the technological sophistication that surrounds the cryptocurrency industry, Jennings points out that the root cause of FTX’s failure had very little to do with complex financial products or revolutionary blockchain mechanics. The fundamental problem was strikingly ordinary: customer assets were misused, funds belonging to clients were commingled with company treasuries, no independent custody arrangement existed to protect deposits from internal abuse, disclosure obligations were virtually absent, and no regulator possessed the clear authority to intervene before the damage became catastrophic. These are not exotic failures in some new realm of finance. They are precisely the kind of basic protections that have functioned in American banking, brokerage, and securities markets since the Great Depression. The absence of those safeguards in an industry responsible for billions of dollars in customer funds was not a matter of negligence alone; it was an inevitable outcome of a regulatory vacuum.
The CLARITY Act, Jennings argues, is designed to end that vacuum by bringing digital asset intermediaries, dealers, and exchanges into an explicit, comprehensive regulatory structure. This represents a considerable philosophical shift in how the United States has approached crypto regulation. Instead of trying to prohibit the technology, or forcing digital assets awkwardly into legal categories designed decades before the internet existed, the legislation takes a more practical route: treat digital asset businesses like the financial institutions they have functionally become. The purpose, as Jennings describes it, is to import the strongest elements of traditional financial regulation into a distinctly modern context — not to suffocate innovation, but to provide the institutional scaffolding that allows innovation to thrive responsibly. The precedent is well established elsewhere in the economy: industries become credible when they become regulated. And in Jennings’ view, the crypto sector has reached a maturity threshold where regulatory clarity is no longer a burden to be resisted, but a prerequisite for its legitimacy, its stability, and its capacity to continue attracting the kind of capital that will define its future. Without it, the sector remains exposed to the exact failure that took down FTX — and it will carry that exposure indefinitely if Congress refuses to act.
What CLARITY Would Actually Do
The substantive provisions of the CLARITY Act offer a concrete picture of what smarter crypto regulation looks like in practice. Among the most important is the unbundling of customer assets from corporate capital — a technical requirement designed to prevent the very mixing of funds that allowed FTX to spend customer deposits as if they were the firm’s own. The bill equally mandates qualified custody services, requiring that digital assets be held by independent, regulated third-party custodians rather than being left in the direct control of the platform. This would close a vulnerability that has been exploited repeatedly in crypto’s short history, where exchanges often act as both the depository and the counterparty, a conflict with potentially catastrophic consequences for clients. The CLARITY Act would also impose limits on conflicts of interest between intermediaries and related parties, curbing arrangements in which an exchange might trade against its own customers’ positions or otherwise profit at their expense through opaque internal arrangements. Mandatory disclosure obligations would force platforms to be transparent about their financial condition, operational structure, and risk exposures — the type of information that investors in traditional securities markets long ago came to expect as a matter of course.
Listing standards would require that tokens traded on regulated exchanges reach a minimum bar of credibility, helping to filter out fraudulent or speculative projects before they ever reach retail investors. And insider trading rules would bar platform insiders from selling tokens when they possess material, non-public information, a prohibition that aligns the digital asset space with the longstanding securities laws governing public corporations. Collectively, these provisions create a coherent framework designed with real-world vulnerabilities in mind — each one directly responsive to some aspect of the FTX scandal or similar failures. This is not, as some critics have charged, a mere stamp of approval for the industry. It imposes meaningful obligations on intermediaries that have historically faced minimal accountability. But those obligations are also fair: if a crypto exchange is expected to keep client assets secure, disclose material information, and avoid conflicted arrangements, then it can operate with confidence and clarity, knowing precisely what the rules are and what compliance demands. The bill’s design, in short, seeks to balance the interests of consumer protection and market innovation.
A “Deregulation” Bill? Jennings Says the Critics Have It Backwards
One of the most interesting rhetorical skirmishes surrounding the CLARITY Act centers on the charge that the bill is a deregulatory gift to the crypto industry. Jennings rebuts that claim with striking directness. The legislation, he argues, is not about loosening rules; it is about defining them for a sector that has existed for years in a state of legal confusion. Under current U.S. law, a substantial number of digital assets do not fit into any of the established regulatory categories. They are neither clearly securities nor clearly commodities, neither wholly owned currency nor property, and the ambiguity has left both market participants and regulators navigating a fog of uncertainty. That fog, Jennings insists, has had pernicious effects. It has allowed offshore platforms like FTX to grow into global giants while remaining effectively outside the jurisdiction of U.S. authorities. It has created a perverse incentive for legitimate enterprises to incorporate and operate overseas, where the rules are either clearer or more permissive, depriving American markets of innovation, jobs, and oversight. And it has made enforcement inconsistent — at times arbitrary, at times excessively punitive, and almost always reactive.
In this context, the CLARITY Act is less a deregulatory measure than a clarification measure — a way of drawing clear lines so that entrepreneurs, investors, and regulators all understand where they stand. It resolves jurisdictional ambiguities by determining which assets fall within which categories and which agencies bear responsibility for oversight. It replaces the current patchwork of guidance documents, enforcement actions, and contradictory court rulings with a coherent statutory foundation. For Jennings, this clarity is itself a form of protection: it prevents bad actors from exploiting jurisdictional gaps and prevents regulators from pursuing inconsistent, politicized approaches to enforcement. He is particularly troubled by the way crypto policy in the United States has become a partisan football, shaped more by the executive branch’s changing political priorities than by any stable, considered legal doctrine. A new administration can remake entire regulatory agendas with the stroke of a pen; the SEC’s stance on digital assets under one leadership can be abruptly reversed under another. That instability is corrosive to any market, but it is especially damaging to one that depends on long-term confidence and institutional participation. Rule of law, Jennings contends, requires rules that endure — and those can only be established by Congress.
Stablecoins, Wall Street, and a Market Transformed Since FTX
The crypto market that the CLARITY Act aims to regulate is almost unrecognizable from the one that existed when FTX collapsed. In 2022, stablecoins — digital assets pegged to traditional fiat currencies — were already an important piece of the ecosystem, but their footprint has since expanded exponentially. Today, the total supply of stablecoins has surged past the $300 billion mark, while the market for tokenized real-world assets has exceeded $30 billion. These figures reflect more than speculative enthusiasm; they indicate a broader, quieter integration of blockchain technology into the infrastructure of the American economy. The involvement of marquee financial institutions reinforces that impression. BlackRock, Fidelity, Franklin Templeton, and Goldman Sachs — names that collectively oversee trillions in assets — have all made substantive investments in digital assets and tokenized products. Their movement into the space is a powerful signal that crypto has moved far beyond the margins of the financial system, embedded now in the strategies of the world’s most powerful money managers.
That transformation carries profound implications for systemic risk. When FTX failed, its victims were primarily retail investors and crypto-natives — a painful but relatively contained population. A future crisis in a more institutionalized market, by contrast, could ripple outward to affect pension funds, retirement savers, corporate balance sheets, and perhaps the banking system itself, especially if it involves a run on major stablecoins. Jennings has been attentive to these concerns, specifically addressing the question of stablecoin yields, which have become a source of simmering controversy as platforms used them to attract billions in deposits. The new regulatory framework, he notes, would limit passive yields on stablecoins, reducing the risk that these products become vehicles for excessive risk-taking and destabilizing flows of capital. The bill would also authorize the Treasury Department to take additional action if evidence of problematic capital outflows emerges. These are not the measures of an industry seeking to evade oversight; they are the safeguards of one seeking credibility and stability in the mainstream financial world.
September 15: A Pivotal Test for American Crypto Policy
Whether Washington can transform its stated intentions into actual legislation will face an immediate test on September 15, when the Senate is scheduled to vote on whether to begin formal deliberation on the CLARITY Act. It is the first step in a lengthy procedural process, but also an important signal of whether the bill has a realistic path forward. Jennings framed the moment in terms that are difficult to dismiss: “If we don’t act now, the next crisis could be much bigger.” His warning reflects a deeper concern about the institutional memory of American politics. The lessons of FTX were vivid, concrete, and costly, but public attention inevitably drifts. Bankman-Fried’s trial is over. The headlines have moved on. The sense of emergency that followed one of the largest frauds in financial history has gradually cooled into a more comfortable indifference. And with each session of Congress that ends without a comprehensive crypto regulatory framework, the industry’s structural vulnerabilities remain unaddressed — latent, unresolved, and waiting for the next shock to reveal them.
Should that shock arrive, it may not look like FTX. It could emerge from a stablecoin run, a cascade of margin calls across leveraged trading platforms, or the sudden collapse of an offshore exchange serving American customers beyond the reach of U.S. enforcement. The specific circumstances are impossible to predict; the systemic weakness is not. The infrastructure to prevent such crises was never built, and the consequences of continued congressional paralysis grow more severe with every passing year that the market expands without it. Jennings’ call to action is therefore an appeal to hardheaded realism. Financial markets do not become stable by self-regulation alone; they become stable through legal frameworks that define acceptable behavior, protect participants, and provide mechanisms for accountability. The CLARITY Act may not be perfect, and its passage is far from assured, but its consideration represents a genuine opportunity for the United States to replace drift with direction. If the Senate takes that opportunity seriously, it will demonstrate that Congress is capable of learning from disaster and adapting to a changing financial landscape. If it fails, the next collapse may be remembered as the moment when Washington ignored every warning — and the price was far heavier than anyone imagined.
This article is for informational purposes only and should not be construed as investment advice.
