Solana Policy Institute, a nonprofit organization focused on blockchain policy, has urged the U.S. Securities and Exchange Commission (SEC) to distinguish between centralized crypto exchanges and non-custodial decentralized finance (DeFi) software, arguing that developers should not be regulated as intermediaries.
Friday’s letter asks the SEC to protect DeFi app developers by recognizing that developing and publishing non-custodial code is not the same as brokering or managing the underlying funds.
The letter argues that treating developers of non-custodial protocols under Exchange Act 3b-16 is inappropriate because it applies to exchange operators who store assets, control execution flows, and act as intermediaries.
“Transactions conducted via smart contract protocols are not the regulatory equivalent of transactions on exchanges or ATSs, and should not be treated as such.”
The Institute asked the SEC to issue guidance to distinguish between non-custodial software tools and transactions with brokers.
It also called on the agency to amend Act 3b-16 to exclude open source code from the definition of “exchange” and adopt a custody-based framework that draws a line between intermediation and non-intermediation of blockchain activities.
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The letter further argued that treating DeFi codes the same as centralized trading platforms risks “stifling innovation” and pushing overseas activity into “unregulated channels,” thereby reducing U.S. competitiveness.
To protect DeFi developers and land-based operations, the letter adds that the SEC needs to establish “clear and durable boundaries between software tools and actual intermediaries that exercise control, discretion, or control over funds or transactions.”
The issue of developer liability has gained attention in recent years, particularly after criminal cases involving developers of non-custodial protocols, such as Tornado Cash co-founders Roman Storm and Alexey Pertsev. Both men were found guilty of operating an unauthorized money transfer business despite the protocol being non-custodial and never controlling users’ funds.
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US senator pushes for protections for blockchain developers
Separately, U.S. Sens. Cynthia Lummis and Ron Wyden introduced legislation on Monday aimed at protecting blockchain developers who do not directly handle user funds and are exempt from money transfer provider regulation.
The Blockchain Regulatory Certainty Act seeks to make clear that creating software or maintaining a network should not trigger federal or state remittance requirements, which are a growing concern for developers.
“For too long, blockchain developers who simply write code and maintain open source infrastructure have been under threat of being classified as money transmitters,” Lummis said in a statement, adding that the bill aims to give developers clearer information to build “a future of digital finance without fear of prosecution.”
The long-awaited Cryptocurrency Market Structure Act, also known as the CLARITY Act, includes similar developer protections.
The U.S. Senate Agriculture Committee has postponed the increase in the Cryptocurrency Market Structure Act until late January, with Chairman John Boozman saying the committee needs additional time to secure broader bipartisan support. Boozman said Monday that the committee had made “meaningful progress” and had “constructive discussions,” but stressed that moving the bill forward with bipartisan support remains a priority.
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