Solana Policy Institute Asks SEC to Protect DeFi Developers from Regulations

Solana Policy Institute Sends Letter to SEC

The Solana Policy Institute, a nonprofit organization focused on blockchain policy, has requested that the U.S. Securities and Exchange Commission (SEC) differentiate between centralized crypto exchanges and non-custodial decentralized finance (DeFi) software. They argue that developers should not be regulated as intermediaries.

In a letter sent on Friday, the institute emphasized that the development and publication of non-custodial code is not the same as intermediating or controlling the underlying funds. The letter argues that treating developers of non-custodial protocols under the Exchange Act 3b-16 would be inappropriate, as it applies to exchange operators who hold assets, control execution flow, and act as intermediaries.

“Transactions that occur through a smart contract protocol are not the regulatory equivalent of transactions on an exchange and should not be treated as such,” the letter stated. The institute urged the SEC to issue guidance to distinguish between non-custodial software instruments and brokerage exchanges, and to amend Act 3b-16 to exclude open-source code from the definition of “exchange.”

They added that treating DeFi code in the same conditions as centralized trading platforms risks “stifling innovation” and pushing activity into “unregulated” channels, thereby reducing the competitiveness of the United States. To protect DeFi developers and local activity, the SEC should establish “clear boundaries between software instruments and actual intermediaries that exercise custody, discretion, or control over funds or transactions.”

The issue of developer liability has gained increased attention in recent years, especially following criminal cases involving non-custodial protocol developers, such as Tornado Cash co-founders Roman Storm and Alexey Pertsev, who were found guilty of operating an unauthorized money transfer business, despite their protocols being non-custodial and never controlling users' funds.

Separately, U.S. Senators Cynthia Lummis and Ron Wyden introduced legislation on Monday seeking to protect blockchain developers who do not directly manage user funds. The Blockchain Regulatory Certainty Act aims to clarify that writing software or maintaining networks should not trigger federal or state money transfer requirements, which has become an increasingly pressing concern for developers.

“Blockchain developers who have simply written code and maintained open-source infrastructure have lived under the threat of being classified as money transmitters for far too long,” Lummis stated in a press release, adding that the bill aims to give developers more clarity to build the “digital financial future without fear of persecution.”