It also said that transactions on a smart contract protocol are not the same as trading on an exchange or an alternative trading system and should not be treated that way.
In recent Solana news, the Solana Policy Institute told the U.S. Securities and Exchange Commission to clearly separate non-custodial DeFi software from traditional exchanges.
According to the group, treating open-source code like an exchange creates serious risks for innovation. As such, the current regulatory approach could discourage developers from building new tools.
As a result, the institute argued that clearer distinctions are necessary to protect decentralized development while still allowing regulators to do their job.
According to recent Solana news, the Solana Policy Institute, a nonprofit that works on blockchain policy, asked the U.S. Securities and Exchange Commission (SEC) to draw a clear line between centralized crypto exchanges and non-custodial DeFi software.
According to the institute, developers who publish open-source code should not be treated as market intermediaries. It said building and deploying non-custodial smart contracts is fundamentally different from running an exchange.
In its view, DeFi developers do not hold user funds. They also do not control how transactions are executed or make decisions over other people’s assets.
For that reason, the group argued that applying Rule 3b-16 under the Securities Exchange Act misses the mark. It explained that the rule was designed for platforms that custody assets, step in between trades, or manage the flow of transactions.
As a result, the institute warned that extending the rule to non-custodial DeFi protocols would stretch the definition of an exchange beyond its original purpose.
The Solana Policy Institute said transactions on a smart contract protocol are not the same as trading on an exchange or an alternative trading system and should not be treated that way.
It asked the SEC to provide clear guidance on how to distinguish non-custodial software tools from exchanges with brokers.
As per the Solana news, the institute also recommended updating Rule 3b-16. It suggested excluding open-source code from the definition of an exchange and adopting a framework based on custody and control.
This approach would clearly separate intermediated activity from disintermediated blockchain operations.
The Solana Policy Institute warned that treating DeFi code like centralized trading platforms could discourage innovation. It said such rules might push activity offshore to unregulated channels, weakening the competitiveness of the U.S.
To support developers and keep activity in the U.S., the institute asked the SEC to clearly separate software tools from companies that actually handle or control user funds.
Legal action against developer Roman Storm in the U.S. and co-founder Alexey Pertsev in the Netherlands has sparked debate. The big question is whether writing and sharing open-source code can put developers at risk of criminal charges, even if they never handle user funds.
On Monday, Senators Cynthia Lummis and Ron Wyden unveiled a bill aimed at protecting blockchain developers who don’t manage user funds. This has also created headlines in the Solana news column.
The Blockchain Regulatory Certainty Act is designed to make it clear that simply writing software or running a network shouldn’t automatically bring federal or state money-transfer rules into play.
These rules have increasingly concerned developers. Lummis said that developers who write code or run open-source projects have often worried about being treated as money transmitters.
She added that the new bill gives them clear protection, so they can work on the future of digital finance without fear of legal trouble.
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