There’s a New DeFi Bill in Congress—What Does That Mean for Crypto Market Structure?

Lawmakers introduced a bill Thursday protecting crypto software developers from criminal prosecution. Does that mean the crypto market structure bill is falling by the wayside?

In brief

• A bipartisan group of lawmakers introduced a bill to protect non-custodial crypto developers from criminal prosecution.
• The bill would amend a criminal code used to convict multiple crypto developers last year.
• While similar protections may appear in a broader crypto market structure bill, the bill may not pass this year.

A bipartisan group of lawmakers introduced a bill Thursday that would exempt certain decentralized software developers from criminal liability.

With crypto’s stalled market structure bill poised to contain similar language, what does the bill’s introduction mean for the state of privacy-focused crypto legislation in Washington?

The new bill goes further than similar language currently being debated in market structure legislation—but should not be seen as an indication that the market structure bill’s language on developer protections is too weak, nor that the market structure bill itself is doomed, a source familiar with the thinking behind the new bill told Decrypt.

The new bill, dubbed the Promoting Innovation in Blockchain Development Act, would formally amend the language of a U.S. criminal statute that has been successfully used—by both the Joe Biden administration and the current Donald Trump administration—to prosecute crypto software developers.

The statue, U.S. code 1960, defines an illegal money transmitting business. Today’s legislation would amend the code to ensure it applies only to individuals who “exercise control over currency.” It was introduced in the House today by Reps. Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA).

Last year, an Ethereum software developer was found guilty by a Manhattan jury of violating code 1960 for developing a crypto privacy tool called Tornado Cash. The developer argued that because the software was decentralized, and he did not take custody of user funds, he should not be considered the operator of an illegal money transmitting business.

Some months later, the Trump Department of Justice secured guilty pleas under code 1960 from two Bitcoin software developers who created a similar platform called Samourai Wallet. The developers are both currently serving sentences in federal prison.

“This bill is critically important for engineers,” the DeFi Education Fund, an industry advocacy group, said today of the Promoting Innovation in Blockchain Development Act.

“It makes it clear that software developers who do not take custody of or control other people’s money can build neutral technology, here at home, without worrying about being criminally prosecuted as if they are a financial intermediary," the group said.

The crypto market structure bill is likely to include language addressing code 1960—but not language that actually rewrites the statute itself. The language would, instead, order that “non-controlling developer[s]” not be treated as engaged in money transmitting under code 1960. 

Language in the bill surrounding decentralized finance, or DeFi, is currently in relative flux, however, as lawmakers and industry stakeholders attempt to salvage the legislation after months of delays. DeFi refers to the collection of financial applications that exist natively on blockchain networks, circumventing the need for third-party intermediaries such as banks.

DeFi language in the bill, though, while not finalized, is unlikely to be the hill the bill dies on, sources familiar with the matter told Decrypt. Industry leaders and the banking lobby are currently locked in another disagreement regarding stablecoin rewards, while Senate Democrats and the White House remain at an impasse on language regarding conflicts of interest and President Trump’s numerous crypto ventures.

Lawmakers have urged that the bill needs to see significant progress in the coming weeks, or it risks falling by the wayside as Congress grinds to a halt in the spring ahead of November’s midterms.

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