The Dawn of DeFi Regulation》U.S. Department of Justice: Will no longer prosecute decentralized software developers for “unlicensed fund transfers”
The U.S. Department of Justice announced that it will no longer pursue truly decentralized software developers for unlicensed fund transmission clauses, bringing the dawn of regulation to DeFi, but the Roman Storm case remains an unresolved issue.
(Preliminary briefing: The U.S. Department of Justice plans to prosecute Dragonfly Capital, an investment shareholder of the currency mixer Tornado Cash)
(Background supplement: Roman Storm, co-founder of Tornado Cash, reiterated that "open source software is not guilty," Vitalik supports: on-chain privacy is extremely important)
Contents of this article
At the Innovation Project Summit in Jackson Hole, Wyoming, USA, on August 21, Matthew, acting head of the Criminal Division of the U.S. Department of Justice, Galeotti announced that prosecutors will no longer invoke the "unlicensed fund transmission business" provisions of 1960(b)(1)(C) of the United States Code to prosecute software developers that are "truly decentralized and without third-party hosting or control."
This conversation is equivalent to lighting up a guiding light for the world of decentralized finance (DeFi).
DOJ draws a new red line
Galeotti emphasized that the new policy is intended to distinguish between "neutral tools" and "criminal intent" to avoid accidental damage to innovation due to the technology itself. His remarks echoed a memorandum issued in April to encourage prosecutors to handle encryption cases with caution, revealing that the Trump administration's law enforcement thinking has shifted from "catch all" to "precision strikes."
At the same time, this move is seen as drawing a safe boundary between open source developers and privacy agreements, but it also leaves a proviso: if the developer has obvious criminal intent, the Ministry of Justice can still pursue prosecution for other crimes. In other words, "decentralization" and "no custody" have become the bottom line of compliance, but they are not a guarantee of liability.
The shadow of the Roman Storm case
The trigger for the policy U-turn was the controversy surrounding the conviction of Roman Storm, co-founder of the Tornado Cash mixer, a few weeks ago. A Manhattan jury in August found him guilty only of "unlicensed fund transmission" and was not found guilty of all other charges of money laundering and sanctions violations. The legal community generally believes that the judgment expanded the definition of "fund transmission" and brought program developers who do not hold funds into a high-risk area.
However, DOJ relaxed enforcement at this time, which made the outside world feel that it was "too late." Amanda Tuminelli, executive director of the DeFi Education Fund, expressed her affirmation of the loosening of the policy and said publicly:
The Department of Justice recognized that software developers should not be responsible for third-party abuse of programs, confirming our years of advocacy.
Peter Van Valkenburg, executive director of the blockchain think tank Coin Center, regretted that "it seems to be a step too late for Roman" and questioned whether the prosecutor would still maintain its original position during the appeal stage.
The industry welcomes but still has doubts
After the news came out, the cryptocurrency lobby and DeFi industry mostly welcomed it. According to market interpretation, this move will help release projects that developers have suspended due to legal uncertainty, and may also attract new capital to rearrange DeFi and privacy protocols. However, risk assessment consultants generally remind that the technical threshold for true decentralization is high. If the project still has an oracle manager or multi-signature governance, it may not be exempted.
In addition, Galeotti did not provide a clear measure of "criminal intent", which means that practical operations still rely on case-by-case judgment. Developers have to balance the open source spirit with compliance pressure, and the market also needs to observe whether state financial regulatory agencies follow up and make adjustments.
What to observe next
The Roman Storm team has planned to appeal against the conviction of "unlicensed fund transmission". The result of the second trial will become a touchstone to measure the credibility of the new policy. On the other hand, if the "Blockchain Regulatory Certainty Act" that is being brewed by Congress can be implemented, it will provide clear definitions at the legislative level and reduce law enforcement's reliance on prosecutors' interpretation.
In general, the DOJ's shift has allowed the DeFi industry to see signs of a "shift from strict to precise" policies, and has also removed some of the shackles on tools seeking privacy protection. But the legal fog has not yet completely dissipated: the truly decentralized technical standards, the threshold of proof of criminal intent, and the direction of Roman Storm’s appeal will all influence the direction of the next wave of innovative energy.
