Why A16Z Is Urging the SEC to Rethink Crypto Custody Rules?

Crypto custody services, tasked with safeguarding $2.7 trillion in digital assets, face a tangled web of challenges.

These services must secure blockchain-based tokens while navigating risks like hacks and complex features like staking and protocol voting.

Yet, U.S.Securities and Exchange Commission (SEC) regulations, rooted in traditional finance, often clash with crypto’s realities.

Venture capital powerhouse Andreessen Horowitz (a16z) submitted a detailed response to the SEC’s request for information on investment custody, urging the SEC to revamp custody rules.

A16z’s proposal to the SEC on April 17, 2025, advocates a principles-based framework for Registered Investment Advisers (RIAs).

The Problem with Current Rules

Custody rules, last updated in 2009, were built for stocks and bonds, not digital assets.

They require RIAs to use third-party custodians, but only a few of these support crypto’s full range of features, like staking or governance.

This leaves RIAs stuck: comply with outdated rules or prioritize client interests by accessing token rights.

A 2023 Bitwise survey found 68% of RIAs struggle with limited custodial options, forcing tough choices.

Scott Walker, a16z’s Chief Compliance Officer, said on X on April 17, 2025,

“We’re excited to see the SEC take steps towards offering guidance for crypto. Advisory clients deserve for their assets to be safeguarded, so we welcome concrete advice from the Commission.”

A16Z’s Proposal: Five Principles

A16z’s proposal outlines five principles to fix this mess. First, focus on protections, not custodian status.

State trusts or unregistered firms could qualify if they pass audits, segregate assets, and secure keys.

Second, a16z argues that custodians must block unauthorized transfers and keep clean ownership records.

Third, RIAs should freely exercise crypto rights—like staking, which unlocks trillions in value—without regulatory blowback.

Fourth, urges for flexibility in best execution; moving assets to secure trading platforms shouldn’t break custody rules.

Fifth, permit self-custody as a fallback, with the same strict standards. According to the venture capitalist, these ideas aim to ease the burden on RIAs, who manage trillions.

The letter iterates the firm’s belief that,

“…the commission should provide new guidance to facilitate custody arrangements for crypto assets, even if only as a temporary measure until it issues new rules.”

A16z isn’t pushing for a free-for-all. The firm’s framework demands audits, disclosures, and disaster recovery to protect clients.

It builds on recent SEC moves, like Staff Accounting Bulletin No. 122 in 2024, which eased bank custody of Bitcoin, and a March 2025 ruling letting banks offer crypto services without prior approval. A16z wants RIAs to get similar leeway.

What’s Next?

Crypto adoption is climbing—70% of U.S. adult investors hold digital assets in 2025, up from 19% in 2023, per NFTEvening Research.

In this light, some of the crypto bigwigs have been working towards facilitating adoption across the globe.

According to a recent report, Binance CEO, Richard Teng, has offered to advise governments worldwide on facilitating crypto adoption.

While according to him, United States is leading the crypto adoption scene, including regulation, there is a lag in the latter aspect.

A16z, with over $30 billion in assets, has the clout to nudge the SEC. Its submission could reshape rules for RIAs.

This letter from the firm followed comments by Mark Uyeda just a day prior, regarding RIA registration.

The then-acting SEC chair suggested the likelihood of the SEC revisiting its threshold of 100 million.

Moreover, he also discussed potential reforms to support smaller firms in this regard.

A16z emphasizes security and transparency. The SEC’s response is pending, but a16z’s call for change highlights a key issue: crypto’s massive market needs rules that keep pace.