the Solana Policy Institute, a nonprofit organization focused on blockchain policy, urges the U.S. Securities and Exchange Commission (SEC) to differentiate between centralized cryptocurrency exchanges and non-custodial decentralized finance (DeFi) software, arguing that developers should not be regulated as intermediaries. A letter sent on Friday urges the SEC to protect developers of DeFi applications, acknowledging that developing and releasing non-custodial code is not the same as intermediating or controlling underlying funds. The letter states that regulating developers of non-custodial protocols under Section 3b-16 of the Securities Exchange Act is inappropriate because the provision applies to exchange operators who custody assets, control trading processes, and act as intermediaries.

The organization calls on the SEC to issue guidance to distinguish non-custodial software tools from trades conducted with brokers. It also urges the agency to amend Rule 3b-16 to exclude open-source code from the definition of “transaction” and to adopt a custody- and control-based framework to distinguish intermediary blockchain activities from non-intermediary blockchain activities.