Lede
The Solana Policy Institute, a nonprofit organization focused on blockchain policy, has formally urged the U.S. Securities and Exchange Commission (SEC) to establish a clear distinction between centralized cryptocurrency exchanges and non-custodial decentralized finance (DeFi) software. In a detailed letter, the institute argued that individuals who develop and publish open-source code should not be regulated as financial intermediaries. The group emphasized that the act of creating and disseminating non-custodial code is fundamentally different from controlling or intermediating the underlying funds of users. According to the institute, developers should be protected by recognizing that software development does not equate to the functions of a traditional financial middleman who manages assets.
Furthermore, the Solana Policy Institute stated that applying Exchange Act Rule 3b-16 to developers of non-custodial protocols is inappropriate. They contend that transactions occurring through smart contract protocols are not the regulatory equivalent of trading on a centralized exchange or an Alternative Trading System (ATS) and should not be treated as such by the agency. To resolve these ambiguities, the institute called on the SEC to issue specific guidance that differentiates between automated software tools and traditional exchanges that employ brokers to facilitate trades and manage user assets. This request highlights a growing industry demand for a regulatory framework that acknowledges the unique nature of decentralized infrastructure and protects the individuals who maintain it.
Context
The push for regulatory clarity regarding developer liability follows several high-profile legal cases in the blockchain sector that have raised concerns about the reach of existing financial laws. Specifically, concerns have intensified after Roman Storm and Alexey Pertsev were found guilty of operating an unlicensed money-transmitting business. These cases involved non-custodial protocols where the developers did not directly control user funds, leading to a broader debate about the legal risks faced by software creators. This legal climate has created significant uncertainty, with many in the industry fearing that simply writing code could lead to federal prosecution under current money-transmission laws even when no customer funds are handled by the software authors.
In response to these developments, U.S. Senators Cynthia Lummis and Ron Wyden introduced the Blockchain Regulatory Certainty Act. This legislation seeks to clarify that writing software or maintaining network infrastructure should not trigger federal or state money-transfer requirements, especially when the developers do not handle user funds directly. Senator Lummis noted in a statement that blockchain developers have lived under the threat of being classified as money transmitters for too long. The bill is intended to provide greater clarity, allowing developers to build digital finance infrastructure without fear of prosecution for maintaining open-source code. This legislative effort aims to provide the sector with a more predictable environment for long-term development and domestic innovation.
Impact
The Solana Policy Institute warned that treating DeFi code in the same manner as centralized trading platforms risks discouraging innovation within the United States. They argued that such a regulatory approach could push blockchain development activity offshore to unregulated channels, which would ultimately reduce the global competitiveness of the U.S. technology sector. To protect developers and keep activity onshore, the institute suggested that the SEC must establish clear and durable lines between automated software tools and actual financial intermediaries that exercise custody, discretion, or control over transactions and funds. The group believes that failing to make this distinction could have long-lasting negative effects on the domestic digital asset ecosystem.
To prevent this outcome, the institute urged the SEC to amend Act 3b-16 to explicitly exclude open-source code from the definition of an “exchange.” They advocate for a framework based on actual custody and control to differentiate between disintermediated blockchain activity and traditional intermediated finance. By adopting these changes, the institute believes the SEC can provide the necessary protections for DeFi developers while ensuring that regulatory oversight is appropriately targeted at entities that manage user assets. The group maintains that recognizing the distinction between software tools and exchange operators is essential for the future growth and security of the decentralized finance sector, as it allows for a more nuanced approach to financial oversight.
Outlook
The future of developer protections in the United States may be determined by the progress of key legislative efforts in the U.S. Senate. The Blockchain Regulatory Certainty Act and the long-awaited crypto market structure bill, also known as the CLARITY Act, both contain measures designed to protect software developers who do not handle user funds. These legislative initiatives aim to establish a stable regulatory environment where the future of digital finance can be developed with legal certainty. Industry observers and policy advocates are closely monitoring these bills as they move through the legislative process, hoping for a final resolution to the ongoing debate over money-transmitter classifications and the status of open-source infrastructure.
However, the timeline for these legislative updates has recently shifted. The U.S. Senate Agriculture Committee has delayed the markup of the crypto market structure bill until late January. Chairman John Boozman stated that the committee requires additional time to secure broader bipartisan support, even though the panel has already made meaningful progress and held constructive discussions. Boozman emphasized that advancing the bill with cross-party backing remains the priority for the committee to ensure it has a viable path forward. Consequently, a final decision on these developer protections and the broader regulatory framework for digital assets is not expected until after the committee concludes its deliberations next year, leaving the industry in a period of continued regulatory anticipation.
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