A crypto developer was convicted last year for running an unlicensed money-transmitting business. That case — and others like it — is now driving one of the sharpest disagreements in Washington over how the US plans to regulate decentralized finance.
The Conviction That Changed The ConversationHis conviction sent a chill through the developer community. It also made the legal definitions buried inside pending crypto legislation feel a lot more urgent.
Chervinsky’s concern is specific. Title 3 of the current Senate Banking Committee draft, he argues, contains money transmitter language broad enough to pull non-custodial software developers into Bank Secrecy Act territory — meaning KYC obligations and the regulatory exposure that comes with them.
His position: that result would effectively hollow out the Blockchain Regulatory Certainty Act, which was written precisely to keep non-custodial builders out of that category.
But the draft also has provisions in Title 3 that undermine the BRCA and subject all sorts of non-custodial software developers to KYC obligations anyway.
Those sections must be fixed or the bill doesn’t work for DeFi.
If the bill doesn’t work for DeFi, it doesn’t work at all.
“The biggest challenge is ensuring non-custodial software developers aren’t misclassified as money transmitters,” Chervinsky said. He called the issue non-negotiable for DeFi, and said it remains unsettled.
The tension he’s flagging isn’t small. Section 604 of the CLARITY Act does incorporate the BRCA, which states that developers who don’t hold or control user funds should not be treated as financial institutions. But Chervinsky’s read is that other language in Title 3 creates enough ambiguity to undo that protection in practice.
On Friday, Lummis fired back directly. She said recent bipartisan revisions to Title 3 make the bill the strongest protection for DeFi developers ever put into law.
“Don’t believe the FUD,” she posted on X, urging supporters to back the legislation’s passage.
What is known: the bill is gaining momentum. Bipartisan progress on stablecoin rewards provisions has pushed it closer to a Senate Banking Committee markup, expected sometime in April.
Chervinsky has noted that those stablecoin provisions have consumed most of the public attention, leaving the developer protection debate in the background despite its significance.
For developers watching closely, the stakes could not be more concrete. The question of whether writing non-custodial software qualifies someone as a money transmitter is not theoretical.
Roman Storm found that out in court. Until the revised CLARITY Act text is available for review, the industry’s only assurance is a senator’s word on social media.
Featured image from Pexels, chart from TradingView
