TLDR
Crypto advocacy groups challenge DOJ’s overreach in prosecuting DeFi developers under money transmission laws.
Amicus brief filed to protect open-source software developers from DOJ’s legal threats.
Legal uncertainty risks driving U.S. crypto innovation offshore, warn industry groups.
DOJ’s crackdown on decentralized finance could harm U.S. crypto growth and innovation.
A coalition of major cryptocurrency advocacy groups has filed an amicus brief in support of a developer facing legal action from the U.S. Department of Justice (DOJ). The brief was filed to challenge the DOJ’s attempt to apply money transmission laws to developers of open-source software, particularly those involved in decentralized finance (DeFi) protocols.
The coalition argues that the DOJ’s actions are an overreach and a threat to the future of decentralized software development in the United States.
Crypto Groups Stand United Against DOJ’s Legal Approach
The amicus brief, filed on behalf of developer Michael Lewellen, includes support from notable organizations such as Paradigm, the DeFi Education Fund, Blockchain Association, and the Crypto Council for Innovation. These groups argue that the DOJ’s interpretation of money transmission laws is flawed and goes beyond its original intent. The law, Section 1960 of Title 18 of the U.S. Code, was designed to regulate unlicensed money transmitters, but the coalition claims it is now being misused to target developers who build open-source decentralized software.
The brief stresses that the DOJ is prosecuting developers merely for publishing open-source code, even though these developers do not control or hold custody of funds. “The government is actively prosecuting multiple developers of peer-to-peer cryptocurrency software, even if those developers simply publish open-source software,” the brief reads.
Legal Uncertainty Created by DOJ’s Actions
The coalition warns that the DOJ’s actions are creating legal uncertainty that could severely hinder innovation in the crypto space. Developers may be discouraged from building decentralized financial infrastructure or privacy-enhancing tools if they fear prosecution under money transmission laws. The brief also draws an analogy, stating that prosecuting developers for writing code is akin to prosecuting a frying pan manufacturer for what someone cooks in it.
The brief further argues that the DOJ’s approach is harmful to the growth of the U.S. cryptocurrency industry. The groups assert that this legal uncertainty could drive innovation offshore, as developers may choose to move abroad to avoid prosecution or cease their work altogether.
“Faced with possible prosecution, developers of peer-to-peer cryptocurrency transfer software will choose to either move offshore or stop creating their tools,” the filing warns.
Broader Context of DOJ’s Legal Pursuits
The legal challenge comes as the DOJ continues its efforts to prosecute developers of privacy-enhancing tools and decentralized finance protocols. Cases like U.S. v. Storm and U.S. v. Rodriguez are ongoing, with developers behind tools like Tornado Cash facing criminal charges under Section 1960.
These cases have sparked significant debate within the crypto community about the scope of the law and the role of developers in creating decentralized systems that empower users to control their financial transactions.
In light of these developments, the coalition of crypto groups has urged the court to reject the motion to dismiss the case and allow it to proceed. The groups believe that a declaratory judgment is needed to clarify the law and ensure that U.S. software development remains neutral and free from overbearing regulatory actions. They argue that without such clarification, the legal environment will remain hostile to developers of decentralized software, undermining the industry’s growth potential.
Challenges to Crypto’s Legal Landscape
The legal challenges faced by developers of decentralized software are part of a broader ongoing debate over the regulatory treatment of cryptocurrencies and blockchain technology. In particular, the government’s efforts to regulate decentralized finance protocols and open-source software developers have raised concerns about stifling innovation and violating principles of free expression and creativity in software development.
While some argue that tighter regulation is necessary to combat illicit activities such as money laundering, others believe that overregulation could harm the industry’s ability to innovate and thrive. The outcome of this legal case could set a precedent for how open-source software and decentralized finance protocols are treated under U.S. law.
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