SEC urged to protect DeFi developers, differentiate code from exchange rules

SEC urged to protect DeFi developers, differentiate code from exchange rules

The Solana Policy Institute, a nonprofit organization that promotes blockchain innovation, is asking the SEC to distinguish between decentralized software and traditional exchanges. In a letter sent Friday, it warns that current regulations can hinder development and discourage DeFi project creators.

The institution argues that non-custodial DeFi code is not the same as operating an exchange or brokerage business, and therefore developers should not be treated as brokerage operators. If the SEC were to apply the 3b-16 Exchange Act to their code, it would be unfair treatment and risk driving innovation offshore.

It recommends that the SEC issue clear guidelines that would distinguish software tools from actual exchange activities with custody and control over funds. It also proposes changes to the law to exclude open source code from the definition of an exchange, thereby supporting innovation and US competitiveness.

The institution warns that strict regulation can discourage developers and move their projects to unregulated countries, which could threaten US technological leadership. Therefore, it is crucial to establish clear boundaries between software tools and the real intermediaries who control the funds.

US Senators Cynthia Lummis and Ron Wyden have also expressed similar views on the subject, introducing legislation to protect blockchain developers. Its aim is to prevent developers who only write code or maintain open-source infrastructure from being considered money transmitters and subject to strict regulations or criminal liability.

Lummis emphasized in her statement that developers should have the right to create without fear of criminal prosecution. The Blockchain Regulatory Certainty Act, known as the CLARITY Act, is intended to provide clear rules and protect innovation in digital finance.

Although the bill has been delayed until January, supporters believe it will find broad consensus and enhance legal certainty for developers and investors.

*This is not investment advice.

The Coingarage Team