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A coalition of prominent crypto organizations is challenging the DOJ’s attempt to classify open-source software developers as money transmitters under federal law.
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The legal battle centers on whether developers of decentralized finance (DeFi) protocols can be held liable for users’ transactions through their code.
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According to COINOTAG, the coalition warns that the DOJ’s expansive interpretation threatens innovation and could push developers offshore.
Crypto groups unite against DOJ’s push to regulate open-source developers under money transmission laws, highlighting risks to innovation and legal clarity.
DOJ’s Broad Interpretation of Money Transmission Laws Faces Strong Opposition
The Department of Justice’s recent efforts to apply money transmission laws to developers of open-source cryptocurrency software have sparked significant controversy. The coalition, including Paradigm, the DeFi Education Fund, and the Blockchain Association, argues that the DOJ’s use of Section 1960 of title 18 U.S. Code misinterprets the statute’s original intent. This law was designed to regulate unlicensed money transmitters who handle custody or control of funds—not software creators who merely provide tools for peer-to-peer transactions.
In their amicus brief supporting developer Michael Lewellen, the coalition emphasizes that software developers do not “transmit” or “transfer” funds themselves. Instead, users independently operate the decentralized protocols. The brief analogizes prosecuting developers to holding a frying pan manufacturer responsible for what users cook, underscoring the flawed logic behind the DOJ’s stance.
Legal Uncertainty Threatens DeFi Innovation and Privacy Tools
The coalition highlights that the DOJ’s aggressive prosecution strategy has created a chilling effect on the development of privacy-enhancing and decentralized financial technologies. Developers face the risk of criminal charges simply for publishing open-source code, which undermines the foundational principles of blockchain innovation. The brief warns that without clear legal protections, talented developers may relocate to jurisdictions with friendlier regulatory environments or abandon projects altogether, potentially stalling the growth of the US crypto ecosystem.
Ongoing Cases Spotlight DOJ’s Enforcement Approach
The filing comes amid high-profile prosecutions such as US v. Storm and US v. Rodriguez, where programmers behind tools like Tornado Cash are charged under the same statute. These cases have intensified debate over the boundaries of legal responsibility for software developers in the crypto space. The coalition urges courts to reject motions to dismiss these cases, advocating for declaratory judgments that clarify the law and protect neutral software development from undue criminal liability.
Coin Center’s Tornado Cash Appeal Dismissed, Highlighting Regulatory Challenges
In a related development, the US Court of Appeals for the Eleventh Circuit dismissed Coin Center’s lawsuit challenging the Treasury Department’s sanctions on Tornado Cash. The dismissal, reached by joint agreement, effectively ended the legal challenge against the Office of Foreign Assets Control’s designation of the mixing service. Coin Center had argued that sanctioning smart contracts and associated wallet addresses exceeded Treasury’s authority, but the court’s decision underscores the complex regulatory landscape facing decentralized protocols.
Implications for the Future of Crypto Development in the US
The combined legal pressures from the DOJ and Treasury Department signal a critical juncture for the US crypto industry. Developers and advocacy groups stress the need for clear, balanced regulations that distinguish between illicit actors and neutral software creators. Without such clarity, the US risks losing its competitive edge in blockchain innovation as developers seek more supportive environments abroad. Industry stakeholders are calling for constructive dialogue between regulators and the crypto community to foster sustainable growth and legal certainty.
Conclusion
The coalition’s unified stance against the DOJ’s expansive interpretation of money transmission laws marks a pivotal moment in the ongoing debate over crypto regulation. Protecting open-source developers from undue prosecution is essential to maintaining the innovation and decentralization that underpin the blockchain ecosystem. As courts weigh these critical issues, the outcome will shape the future regulatory framework and the global competitiveness of the US crypto industry.
