DeFi Education Fund Urges Senate to Rethink Crypto Bill Targeting Developers and Self-Custody

Highlights:

• DeFi Education Fund urges the Senate to protect developers from laws meant for financial intermediaries.
• Crypto firms want federal preemption to stop state actions that may unfairly target DeFi developers.
• a16z warns the Senate that unclear asset rules could allow token dumping without investor protection.

Several major firms in the crypto industry have raised objections to the U.S. Senate Banking Committee’s draft of the Responsible Financial Innovation Act of 2025. The discussion draft aims to better regulate digital assets. However, companies in the sector also caution that it might incorrectly classify decentralized finance (DeFi) tools and impose unfair burdens on developers.

Advertisement

The DeFi Education Fund (DEF), backed by firms including a16z Crypto, Uniswap Labs, and Paradigm, submitted joint comments to the committee. The letter warns against applying existing rules meant for financial intermediaries to developers of open-source code. DEF stated that developers of non-custodial tools should not face the same requirements as banks or brokers.

Today, the DeFi Education fund team submitted a response to DeFi-related questions posed by @BankingGOP’s Digital Asset Market Structure RFI & recently published discussion draft of market structure legislation.

We are honored to have leading DeFi builders, investors &… pic.twitter.com/ZXWleD9S7I

— DeFi Education Fund (@fund_defi) August 1, 2025

The group also urged lawmakers to adopt a tech-neutral approach. This would ensure that laws apply based on function, not on how the tools are built. They emphasized that Americans should not lose the option of owning their digital assets via self-custody.

The letter was addressed to Chairman Tim Scott and Senators Cynthia Lummis, Bill Hagerty, and Katie Britt. DEF noted that clear, balanced legislation can support innovation while preserving financial integrity. The Senate Banking Committee is in the process of gathering feedback as it reviews the draft.

DeFi Education Fund Urges Federal Preemption to Protect Developers

The DeFi Education Fund asked the Senate to stop states from enforcing separate rules on DeFi. It warned that uneven state laws could allow traditional financial firms to target developers unfairly. According to DEF, some institutions could influence state action not to protect consumers but to weaken competition.

Federal preemption, DEF argues, would create uniform protections across the country. This would ensure that developers have a clear idea of what is expected of them, instead of attempting to develop in the face of competing state laws. Without this protection, according to DEF, developers undergo unwarranted risk and legal insecurity. The group also discussed the necessity of updating the FinCEN guidance. The suggestion comes in response to the ongoing legal case against Roman Storm, the Tornado Cash developer. Storm faces charges because its code was allegedly used by bad actors, despite being open-source and not under his control.

The group stipulated that software that does not store or handle funds should not be considered a financial institution. DEF asked lawmakers to make sure that the law distinguishes between code and conduct. It stated that regulating developers for simply writing code would harm both innovation and freedom of expression.

a16z Flags Investor Risk in Bill’s Asset Classification

a16z Crypto submitted a separate response to the Senate. It focused on how the draft bill defines “ancillary assets.” The firm warned that the current language may allow insiders to offload tokens without proper oversight.

(2/3) 📜 a16z Warns on US Crypto Bill

a16z's open letter to the US Senate highlights "serious loopholes."

•"Ancillary assets" definition is too vague
•Conflicts with existing securities law
•Major revisions are needed for investor protection#a16z #Regulation

— summerchon (@summerchon3) August 2, 2025

It argued that these definitions may not align with existing securities laws. A16z pointed to the Howey test, which sets the standard for determining if an asset qualifies as a security. It said the draft bill could create gaps in investor protection and confuse enforcement.

A16z Crypto proposed a new model that will be used to classify digital commodities. This model would use clear standards to define decentralization. It would also preserve investor protection by requiring transparency and accountability. The Senate Banking Committee has not yet announced a timeline for the bill’s revision.

Advertisement