DeFi Developers: Not Liable for Users' Actions, Crypto Advocacy Group Urges DOJ Reconsideration

The DeFi Education Fund, a crypto advocacy group, has called on the U.S. Department of Justice (DOJ) to reconsider its approach to holding DeFi protocol developers accountable for users' actions. In a blog post published on Feb. 4 by Andreessen Horowitz (A16z), co-authors Miller Whitehouse-Levine and Amanda Tuminelli from the DeFi Education Fund argued that developers should not be liable for how their software is used, comparing them to car manufacturers who are not responsible for drivers' actions.

The authors warned that targeting developers under laws such as Section 1960 could create harmful precedents, potentially expanding legal risks across the crypto industry. They stressed that policymakers must distinguish between those who create technology and those who actively control it. Misplacing liability, they argued, could hinder technological advancement and discourage innovation in the DeFi sector.

To illustrate their point, the authors outlined how the DOJ's broad interpretation of the "Money Transmitting license" negatively impacts the industry by comparing transactions on centralized exchanges to DeFi protocols. 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. The authorities are currently entangled in a legal battle with developer Roman Storm for alleged violation of this provision.

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. They called for clearer legal guidelines, particularly in defining control within financial regulations, to reduce uncertainty and support responsible innovation.

The DeFi Education Fund's call for a rethinking of liability for developers comes as the crypto industry continues to grapple with regulatory uncertainty. As the DOJ and other regulatory bodies seek to clarify their stance on DeFi protocols, the industry awaits further guidance on the legal responsibilities of developers and the distinction between centralized and decentralized platforms.