DeFi advocacy group urges DOJ to rethink liability for developers

Imagine buying a car, only to have the manufacturer held responsible for every speeding ticket you get. Sounds absurd, right? Yet, this is exactly what’s happening in the world of decentralized finance (DeFi) – and it’s sparking a heated debate.

DeFi advocacy group urges the US Department of Justice to reconsider its approach to holding DeFi protocol developers accountable for users’ actions. Clearer guidelines are needed to define control within financial regulations.

The Case for Reconsideration

The DeFi Education Fund, a leading advocacy group, has called on the US Department of Justice (DOJ) to rethink its stance on holding DeFi protocol developers liable for users’ actions. In a recent blog post, co-authors Miller Whitehouse-Levine and Amanda Tuminelli argued that developers should not be held accountable for how their software is used. They drew a striking comparison to car manufacturers, who aren’t responsible for drivers’ actions.

According to the authors, “The same intuitive principle that governs our understanding of car manufacturer and driver liability should be the foundation of sensible policymaking in the context of decentralized networks and protocols.” They warned that targeting developers under laws like Section 1960 could create harmful precedents, potentially expanding legal risks across the crypto industry.

The Importance of Regulatory Clarity

The authors emphasized the need for clearer guidelines, particularly in defining control within financial regulations. They pointed out that the DOJ’s broad interpretation of the “Money Transmitting license” negatively impacts the industry. This law governs money-transmitting businesses and carries severe penalties, including fines of up to $250,000 and five years in prison for failing to register.

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The authors argued that a proper interpretation of money transmission laws must factor in custody and control. A centralized exchange moves user funds on behalf of customers, making it a financial intermediary. In contrast, a DeFi protocol is simply a tool that users interact with on their own terms, without any third-party oversight.

A Call to Action

The DeFi Education Fund is urging industry leaders and lawmakers to come together to ensure the law properly reflects accurate concepts of custody and control. They noted that a well-defined legal framework will reduce uncertainty and support responsible innovation.

As the authors concluded, “Industry and lawmakers must come together in 2025 to ensure the law properly reflects accurate concepts of custody and control and the responsibilities that flow from it – whether that’s in the context of a market structure bill, broker reporting obligations, or in reforming Section 1960.” The future of DeFi depends on it.

The Future of DeFi: Why Developers Shouldn’t Be Held Liable

Source: Defi Advocacy Group Urges Doj To Rethink Liability For Developers | Cryptoslate.com

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