DeFi Education Fund Pushes Senate for Enhanced Crypto Developer Protections

Crypto Lobby Group Calls for Regulatory Reform

The DeFi Education Fund has submitted comprehensive feedback to the US Senate Banking Committee regarding the recently published discussion draft of a crucial cryptocurrency market structure bill. The crypto advocacy organization is urging lawmakers to reconsider their approach to regulating the decentralized finance sector.

Key Members Support Regulatory Changes

The response represents major industry players, with backing from DeFi Education Fund members including a16z Crypto, Uniswap Labs, and Paradigm. These organizations collectively advocate for significant modifications to the proposed Responsible Financial Innovation Act of 2025.

Primary Concerns About Current Draft

The DeFi Education Fund outlined several critical issues with the current legislative approach:

Tech-Neutral Regulation Needed

The organization emphasized that the RFA bill should adopt a more technology-neutral framework. This approach would prevent discriminatory treatment of different blockchain technologies and ensure fair regulatory standards across the cryptocurrency ecosystem.

Developer Protection Requirements

A central concern involves protecting cryptocurrency developers from inappropriate regulation designed for traditional financial intermediaries. The Fund argues that software developers should not face the same regulatory burden as custodial financial institutions.

Self-Custody Rights Protection

The submission strongly advocates for preserving self-custody rights for all Americans, describing these rights as essential to the cryptocurrency ecosystem's core principles.

Balancing Innovation and Compliance

The Friday letter addressed to Senate Banking Committee Chairman Tim Scott and Senators Cynthia Lummis, Bill Hagerty, and Katie Britt emphasized the need for balanced regulation. The legislation should address illicit finance concerns without creating unfair burdens on DeFi innovation.

Senate Banking Committee Response

The Senate Banking Committee has welcomed the feedback from industry stakeholders. The committee specifically requested input on the discussion draft to ensure the legislation builds effectively on the Digital Asset Market Clarity Act of 2025.

The committee aims to promote innovation within the 141 billion dollar DeFi industry while maintaining consumer protections and financial stability.

Tornado Cash Case Implications

The DeFi Education Fund specifically referenced the ongoing legal case involving Tornado Cash developer Roman Storm. The organization called for updated FinCEN guidance that reflects current technological realities.

Non-Custodial Software Clarification

The Fund recommended that rulemaking should clearly establish that technology consisting solely of non-custodial, non-controlling software should not be regulated as a financial institution or financial intermediary.

Federal Preemption Advocacy

The crypto lobby group strongly supports federal preemption of conflicting state laws to ensure consistent protections for cryptocurrency developers nationwide.

Addressing Regulatory Fragmentation

The DeFi Education Fund warned that well-resourced traditional financial institutions might exploit fragmented regulatory landscapes. These institutions could potentially fund or encourage state-level enforcement actions against DeFi developers to stifle competition rather than protect consumers.

A16z Crypto Separate Submission

A16z Crypto submitted its own response to the Senate Banking Committee on Thursday, separate from the DeFi Education Fund submission.

Ancillary Assets Concerns

A16z Crypto's primary criticism focuses on the draft bill's treatment of ancillary assets. The firm argues that the current approach risks undermining investor protections by creating dangerous regulatory loopholes.

Securities Law Compatibility Issues

The firm contends that redefining ancillary assets without major changes creates incompatibility with existing US securities law, particularly the established Howey test framework.

Alternative Digital Commodity Model

Instead of the current approach, A16z advocates for implementing a digital commodity model with clear decentralization requirements. This framework would provide better regulatory clarity while maintaining appropriate investor protections.

Industry Impact and Future Outlook

The feedback from these major industry players highlights the ongoing tension between regulatory oversight and cryptocurrency innovation. The Senate Banking Committee must balance competing interests while crafting legislation that supports technological advancement.

Market Structure Implications

The final version of the market structure bill will significantly impact how DeFi protocols operate within the United States. Clear guidelines for developers and protocol operators remain essential for continued industry growth.

Consumer Protection Balance

Lawmakers face the challenge of implementing robust consumer protections without stifling the innovation that makes decentralized finance attractive to users and developers alike.

The ongoing dialogue between industry stakeholders and regulators will likely continue as the legislative process moves forward, with both sides working toward a framework that supports innovation while maintaining appropriate oversight.

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