There’s a Fresh DeFi Proposal in Congress—How Could This Impact the Crypto Market Framework?

Bipartisan Lawmakers Propose Bill to Protect Decentralized Software Developers

A coalition of lawmakers from both parties has put forward new legislation aimed at shielding certain developers of decentralized software from facing criminal charges.

As Congress considers a broader crypto market structure bill with similar provisions, the introduction of this new measure raises questions about the direction of privacy-focused crypto policy in Washington.

According to a source familiar with the bill’s intent, this proposal goes beyond the developer protections currently being discussed in the market structure legislation. However, it should not be interpreted as a sign that the market structure bill’s language is insufficient or that its passage is in jeopardy, the source told Decrypt.

Details of the Promoting Innovation in Blockchain Development Act

The proposed legislation, called the Promoting Innovation in Blockchain Development Act, seeks to amend a U.S. criminal law—used by both the Biden and Trump administrations—to prosecute crypto software creators. Specifically, it would revise U.S. Code 1960, which defines illegal money transmitting businesses, to clarify that only those who “exercise control over currency” would fall under its scope. Representatives Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA) introduced the bill in the House.

Recent Legal Actions Against Crypto Developers

Last year, a Manhattan jury found an Ethereum developer guilty of violating code 1960 for building Tornado Cash, a privacy-focused crypto tool. The developer argued that, since the software was decentralized and he never controlled user funds, he should not be considered the operator of an illegal money transmitting business.

Months later, the Trump administration’s Department of Justice secured guilty pleas from two Bitcoin developers behind Samourai Wallet, a similar platform. Both are currently serving time in federal prison.

Industry Response and Implications

The DeFi Education Fund, an advocacy group for the industry, described the Promoting Innovation in Blockchain Development Act as “vitally important for engineers.”

“This legislation provides clarity that developers who do not hold or manage other people’s assets can create neutral technology domestically, without fear of being prosecuted as financial intermediaries,” the group stated.

The crypto market structure bill is expected to address code 1960 as well, but rather than rewriting the statute, it would clarify that “non-controlling developers” should not be classified as money transmitters under the law.

Ongoing Debates Over DeFi and Crypto Legislation

Discussions around decentralized finance (DeFi) provisions in the bill remain unsettled, as lawmakers and industry representatives work to revive the legislation after significant delays. DeFi encompasses financial applications built directly on blockchain networks, eliminating the need for traditional intermediaries like banks.

However, sources told Decrypt that the DeFi language is unlikely to be the main obstacle for the bill’s passage. Meanwhile, industry leaders and banking groups are at odds over stablecoin rewards, and Senate Democrats and the White House remain divided on issues such as conflicts of interest and President Trump’s various crypto ventures.

Lawmakers have stressed that the bill must make significant progress soon, or it risks being sidelined as Congress slows down ahead of the November midterm elections.