The Solana Policy Institute, a nonprofit focused on blockchain policy, has called on the US Securities and Exchange Commission (SEC) to draw a clear distinction between centralized crypto exchanges and non-custodial decentralized finance (DeFi) software, arguing that developers should not be regulated as intermediaries.
In a letter sent Friday, the group urged the SEC to protect DeFi developers by acknowledging that creating and publishing non-custodial code is fundamentally different from intermediating transactions or controlling user funds.
The letter further contends that applying Exchange Act Rule 3b-16 to developers of non-custodial protocols would be inappropriate, as the rule is designed for exchange operators that custody assets, control trade execution, and function as intermediaries.
“Transactions that take place via a smart contract protocol are not the regulatory equivalent of trading on an exchange or ATS and should not be treated as such.”
The institute urged the SEC to issue clear guidance distinguishing non-custodial software tools from exchanges and brokered platforms.
It also called on the agency to revise Exchange Act Rule 3b-16 to explicitly exclude open-source code from the definition of an “exchange,” and to adopt a custody-and-control-based framework that clearly separates intermediated activity from disintermediated blockchain use cases.
The letter also warned that regulating DeFi code in the same way as centralized trading platforms could “discourage innovation” and drive activity offshore into “unregulated channels,” ultimately weakening US competitiveness.
To safeguard DeFi developers and keep activity onshore, the SEC should draw “clear, durable lines between software tools and actual intermediaries that exercise custody, discretion, or control over funds or transactions,” the institute said.
Developer liability has come under increased scrutiny in recent years, particularly following criminal cases involving builders of non-custodial protocols. These include Tornado Cash co-founders Roman Storm and Alexey Pertsev, who were found guilty of operating an unlicensed money-transmitting business despite their protocol being non-custodial and never taking control of user funds.
US senators push for developer protections
Separately, US Senators Cynthia Lummis and Ron Wyden introduced legislation on Monday aimed at protecting blockchain developers who do not directly handle or control user funds.
The Blockchain Regulatory Certainty Act aims to clarify that writing software or maintaining blockchain networks should not, on its own, trigger federal or state money-transmission requirements — a growing source of concern for developers.
“Blockchain developers who have simply written code and maintain open-source infrastructure have lived under the threat of being classified as money transmitters for far too long,” Senator Cynthia Lummis said in a statement. She added that the bill is intended to give developers greater certainty to build the “future of digital finance without fear of prosecution.”
Similar protections for developers are also included in the long-anticipated crypto market structure legislation known as the CLARITY Act.
Meanwhile, the US Senate Agriculture Committee has postponed its markup of the crypto market structure bill until late January. Committee Chair John Boozman said more time is needed to secure broader bipartisan support. Speaking Monday, Boozman said the panel had made “meaningful progress” and held “constructive discussions,” but stressed that advancing legislation with cross-party backing remains the committee’s top priority.
