White House Opposes Holding DeFi Developers Liable for Code

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The White House is pushing back against efforts to treat decentralized finance developers like traditional financial institutions, arguing that holding them legally accountable for how their open-source code is used would be unconstitutional and drive blockchain innovation out of the U.S. The debate centers on whether developers of decentralized protocols should be treated like banks, required to monitor customer activity and report suspicious transactions, even though DeFi is designed to remove intermediaries. The White House warns this approach would not survive legal scrutiny and would hand a competitive edge to rival economies like China.

Why it matters

The White House's opposition to expanded developer liability for DeFi code highlights the high stakes in how policymakers approach regulating this fast-growing sector. Treating code as a regulated financial product could significantly chill innovation in the U.S., as developers fear criminal prosecution for how their open-source tools are used, potentially driving blockchain talent and investment to more crypto-friendly jurisdictions.

The details

Provisions in the CLARITY Act would extend liability to individuals who develop or maintain decentralized protocols if those protocols are later used for money laundering or sanctions evasion. This means a developer in Brooklyn who publishes a lending protocol on Ethereum could face prosecution if a wallet linked to a sanctioned entity interacts with that code, even if the developer never controlled or profited from the specific transaction. The White House argues this approach is unconstitutional, as writing and publishing software is protected under the First Amendment, and that it would hand a recruiting advantage to rival economies like China, the UAE, and Singapore that have rolled out tailored regulatory frameworks to attract blockchain builders.

• The CLARITY Act remains in committee and faces an uncertain path to a floor vote.
• Venture capital investment in DeFi projects has dropped sharply from over $20 billion annually in 2021 to roughly $4 billion last year, with regulatory ambiguity cited as the primary barrier.

What’s next

The CLARITY Act still needs to clear the House Financial Services Committee before reaching the full chamber, and its Senate prospects remain unclear. What happens next depends on whether lawmakers accept the White House argument that code and financial services are fundamentally different things, or whether they decide the decentralized finance industry has grown large enough to warrant new liability frameworks that treat protocol developers as the closest thing to a responsible party.