The DeFi Education Fund (DEF), a crypto advocacy group supported by major industry players like a16z Crypto, Uniswap Labs, and Paradigm, is urging the U.S. Senate Banking Committee to strengthen protections for crypto developers in the draft of the Responsible Financial Innovation Act of 2025 (RFA). In a recent letter to the committee, the DEF emphasized the need for a more technology-neutral approach to regulation within the decentralized finance (DeFi) ecosystem.
The DEF's recommendations come in response to the Senate Banking Committee's request for feedback on its discussion draft of the RFA. The committee aims to build on the Digital Asset Market Clarity Act of 2025 to encourage innovation in the $141 billion DeFi industry while safeguarding consumers and ensuring financial stability.
The DEF argues that DeFi developers, who create non-custodial software without controlling user assets, should not be treated as traditional financial intermediaries. The group is advocating for clear distinctions between DeFi developers and centralized intermediaries in the regulatory framework. They are also calling for clear definitions of intermediaries required to register with the government and criteria to determine if a protocol is truly decentralized.
A key concern for the DEF is that the current draft of the RFA could expose developers to legal liability for code vulnerabilities or user actions outside their control. This, they argue, could deter innovation and collaboration within the open-source crypto ecosystem. To address this, the DEF is urging lawmakers to update Financial Crimes Enforcement Network (FinCEN) guidance to reflect that technology consisting solely of non-custodial, non-controlling software should not be regulated as a financial institution or intermediary. This recommendation is particularly relevant in light of the case of Tornado Cash developer Roman Storm.
The DEF is also advocating for federal preemption of state laws to ensure consistent protections for crypto developers nationwide. Without federal preemption, the DEF warns that well-resourced traditional financial institutions may exploit the fragmented regulatory landscape by funding or encouraging state-level enforcement actions against DeFi developers to stifle competition.
In addition to the DEF's recommendations, a16z Crypto has raised concerns about potential loopholes in the draft legislation's treatment of "ancillary assets". The firm warns that the bill, as currently written, may create regulatory gaps that allow insiders to exploit exemptions and distribute tokens without proper oversight. A16z is advocating for a "digital commodity" regulatory model that includes clear decentralization requirements, aligning with existing U.S. securities law. They propose assessing whether any party retains unilateral control over a blockchain system, suggesting that decentralization should mark the point at which an asset transitions from a security to a commodity.
The Senate Banking Committee has welcomed the feedback from the DeFi Education Fund and other industry stakeholders. The committee aims to refine the bill to incorporate tech-neutral principles and strike a balance between fostering innovation and maintaining consumer protection and financial stability. The final legislation could significantly shape the future of DeFi in the U.S. by resolving tensions between regulatory oversight and technological innovation. The DeFi Education Fund is a nonpartisan research and advocacy group that works to educate policymakers and advocate for smart approaches to DeFi regulation.
