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Update (Jan. 13, 2026, 9.45 a.m. UTC): This article was updated to clarify the legal status and jurisdictions of recent cases involving Tornado Cash developers.
The Solana Policy Institute, a nonprofit focused on blockchain policy, urged the US Securities and Exchange Commission (SEC) to clearly distinguish between centralized crypto exchanges and non-custodial decentralized finance (DeFi) software, arguing that developers who publish open-source code should not be regulated as market intermediaries.
In a Friday <a href="https://www.sec.gov/files/cft-written-rfi-response-01092026.pdf" rel="noopener noreferrer nofollow" target="_blank">letter</a> to the agency, the institute said developing and deploying non-custodial smart-contract software is fundamentally different from operating an exchange, as developers do not custody user assets, control transaction execution or exercise discretion over funds.
The letter argued that applying Rule 3b-16 under the Securities Exchange Act — which defines what constitutes an “exchange” — to non-custodial DeFi protocols would be inappropriate, as the rule is intended to cover platforms that custody assets, intermediate trades or control execution flow.
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 “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.”
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The institute called on the SEC to issue guidance on differentiating between non-custodial software tools and exchanges with brokers.&nbsp;
It also urged the agency to amend Act 3b-16 to exclude open-source code from the “exchange” definition and adopt a custody-and-control-based framework to draw lines between intermediated and disintermediated blockchain activity.
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 <img src="https://s3.cointelegraph.com/uploads/2026-01/019bb676-c8a4-71fc-9f23-efcda8cfbcc1.png" title="" alt="Solana Policy Institute urges SEC to exempt DeFi developers from exchange rules">
 <figcaption style="text-align: center;">
 Solana Policy Institute letter to SEC. Source: SEC
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Related: <a href="https://cointelegraph.com/news/standard-chartered-crypto-prime-brokerage-plans" rel="noopener noreferrer nofollow">Standard Chartered said to plan crypto brokerage, trims ETH forecast</a>
The letter further argued that treating DeFi code in the same manner as centralized trading platforms risks “discouraging innovation” and pushing activity offshore to “unregulated channels,” thereby reducing the competitiveness of the US.
To protect DeFi developers and onshore activity, the SEC should establish “clear, durable lines between software tools and actual intermediaries that exercise custody, discretion, or control over funds or transactions,” the letter added.
The issue of developer liability has drawn heightened attention in recent years, particularly following cases involving developers of non-custodial protocols such as <a href="https://cointelegraph.com/explained/what-is-tornado-cash-and-why-did-it-get-into-trouble" rel="noopener noreferrer nofollow" target="_self">Tornado Cash.</a>
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Update (date and time in UTC): This article has been updated to [insert the new info being presented.]
gal proceedings involving Tornado Cash developer Roman Storm in the United States and co-founder Alexey Pertsev in the Netherlands have intensified debate over whether writing and publishing open-source code can expose developers to criminal liability, even when they never custody or control user funds.
Related: <a href="https://cointelegraph.com/news/okx-founder-account-freeze-policy-kyc-accounts" rel="noopener noreferrer nofollow">OKX founder defends asset freezes after user admits buying KYC accounts</a>
<h2 id="us-senators-push-for-blockchain-developer-protection">US Senators push for blockchain developer protection</h2>
Separately, <a href="https://cointelegraph.com/news/blockchain-developer-protections-brca-senate-bill" rel="noopener noreferrer nofollow">US Senators Cynthia</a> Lummis and Ron Wyden introduced legislation Monday seeking to protect blockchain developers who don’t directly handle user funds.
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 <img src="https://s3.cointelegraph.com/uploads/2026-01/019bb676-cb86-7d8a-8589-558eaee50ef8.png" title="" alt="Solana Policy Institute urges SEC to exempt DeFi developers from exchange rules">
 <figcaption style="text-align: center;">
 Source: <a href="https://x.com/SenLummis/status/2010818468778492132" rel="noopener noreferrer nofollow" target="_blank">Cynthia Lummis</a>
 </figcaption>
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The Blockchain Regulatory Certainty Act seeks to clarify that writing software or maintaining networks shouldn’t trigger federal or state money-transfer requirements, which have been a growing concern for developers.
“Blockchain developers who have simply written code and maintain open-source infrastructure have lived under threat of being classified as money transmitters for far too long,” wrote Lummis in a statement, adding that the bill seeks to provide developers with more clarity for building the “future of digital finance without fear of prosecution.”
The long-awaited <a href="https://cointelegraph.com/news/clarity-act-hinges-bipartisan-support-numbers" rel="noopener noreferrer nofollow">crypto market structure bill</a>, also known as the CLARITY Act, includes similar developer protection measures.
The US Senate Agriculture Committee has <a href="https://cointelegraph.com/news/senate-ag-punts-crypto-bill-markup-end-of-month" rel="noopener noreferrer nofollow" target="_self">delayed its markup of the crypto market structure bill</a> until late January, with Chairman John Boozman saying the panel needs additional time to secure broader bipartisan support. Boozman said Monday that the committee had made “meaningful progress” and held “constructive discussions,” but emphasized that advancing a bill with cross-party backing remains the priority.<iframe width="100%" height="315" src="https://www.youtube.com/embed/bnh-hhk3orE?start=" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen loading="lazy" sandbox="allow-scripts allow-same-origin allow-popups allow-forms"></iframe>
&nbsp;Magazine: <a href="https://cointelegraph.com/magazine/how-crypto-laws-changed-2025-further-2026/" rel="noopener noreferrer nofollow">How crypto laws changed in 2025 — and how they’ll change in 2026</a>

Solana Policy Institute urges SEC to exempt DeFi developers from exchange rules

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