The Solana Policy Institute has made a noteworthy appeal to the U.S. Securities and Exchange Commission (SEC), urging them to clarify the differentiation between centralized exchanges and decentralized finance (DeFi) tools. This request was made to bolster innovation and prevent overregulation of developers who create open-source code.

In their letter to the SEC, the institute argues that the operation of non-custodial smart contract software vastly differs from running an exchange, given that developers do not hold user assets nor govern transaction flows.

“Transactions that take place via a smart contract protocol are not the regulatory equivalent of trading on an exchange or ATS and should not be treated as such.”

The institute believes that current regulations could unintentionally stifle technological advancements and push activities to unregulated avenues.

The letter also advocates for revising regulatory frameworks to clearly exclude open-source code from exchange definitions to better delineate software tools from financial intermediaries that manage funds or transactions.

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In parallel developments, U.S. Senators Cynthia Lummis and Ron Wyden have introduced a legislative initiative aimed at safeguarding blockchain developers who manage code without direct engagement with user funds, reinforcing the message that the future of digital finance should be nurtured without the fear of repercussions.