Uniswap and a16z Urge U.S. Senate to Reconsider 2025 DeFi Regulations

Senate Under Fire as Industry Calls for Recalibration of 2025 RFIA DeFi Legislation

Washington D.C. is once again the battleground for a heated crypto policy debate. The Responsible Finance Innovation Act (RFIA) of 2025—proposed legislation aimed at bringing regulatory structure to the burgeoning crypto sector—is meeting resistance from the decentralized finance (DeFi) community. As lawmakers prepare to act, industry groups are warning that the current draft may inadvertently undermine the innovation it intends to oversee, particularly by applying centralized finance frameworks to decentralized protocols.

Defining the Debate: DeFi vs. TradFi in Legislative Lines

At issue is a fundamental disconnect: Regulators are accustomed to overseeing traditional financial institutions that maintain custody over customer assets. DeFi, by contrast, operates on open-source protocols, with smart contracts executing transactions independent of intermediaries. The difference matters, warn industry advocates.

Source: X

The Decentralized Finance Education Fund (DEF)—backed by major players such as a16z Crypto, Uniswap Labs, Paradigm, Multicoin Capital, and the Solana Policy Institute—has formally submitted feedback to the Senate Banking Committee. They express support for regulation that encourages transparency and safety, but criticize aspects of RFIA that could classify protocol developers as custodial entities, mistakenly subjecting them to licensing and registration requirements.

Four Core Principles to Preserve DeFi Innovation

DEF’s response advocates four critical guidelines to prevent regulatory overreach:

Do not equate developers of open‑source protocol code with firms holding customer assets.
Define “decentralized” in a clear, objective manner—based on governance structure and on-chain behavior.
Limit registration requirements to bona fide intermediaries—those who actively facilitate customer transactions or custody.
Ensure the regulatory framework is technology neutral—applied evenly across banking, tech firms, and DeFi.

These principles underscore a broader plea: Protect open-source creators from regulatory burdens reserved for centralized intermediaries.

The Tornado Cash Precedent: Why Developer Liability Matters

The debate has gained urgency due to the ongoing prosecution of Roman Storm, a known developer associated with the Tornado Cash protocol—a privacy tool built on Ethereum. Although Storm reportedly never transacted illicit funds himself, authorities have pursued charges because malicious actors used his code in criminal activities.

Legal experts and civil liberties advocates argue that this precedent blurs the line between authoring open-source software—which is constitutionally protected—and active facilitation of wrongdoing. DEF warns that broad application of the RFIA could expose countless independent developers to similar legal jeopardy.

State Law Fragmentation: The Need for Federal Preemption

Decentralized finance is global in scope but top-down in oversight. Today, regulatory approaches vary significantly across states—some embracing permissive frameworks, others pursuing stringent enforcement against crypto intermediaries and protocol operators.

DEF argues that RFIA should include federal preemption: a clear, consistent legal standard that prevents state governments from applying conflicting rules. Without preemption, they caution, large financial institutions could exploit state-level discrepancies to challenge decentralized protocols in friendly jurisdictions—creating a chilling effect on innovation.

Senate’s Response and Potential Shifts

The Senate Banking Committee has acknowledged receipt of DEF’s feedback and publicly opened its legislative record to stakeholder comments. While lawmakers have expressed intent to regulate responsibly, the question remains whether the bill will evolve to reflect DeFi’s unique structure.

Some senators are reportedly considering clarifying language about what constitutes "control" or "custody" in a smart contract environment. Others may introduce exemptions for developers who do not directly interact with user funds. The outcome is far from certain, but hearings are expected to ramp up in the coming weeks.

Why This Matters: The Future of DeFi in the U.S.

How the United States regulates DeFi will likely define the sector’s trajectory—and determine whether it remains mathematically transparent, open-source, and censorship-resistant, or becomes more centralized and subject to traditional finance frameworks.

Innovation corridors centered around code and governance are at risk if developers must register as financial institutions or face liability for code exploitation. Conversely, a law that recognizes DeFi's architectural distinctions may bolster the U.S.’s competitive edge in Web3 development, token innovation, and digital financial infrastructure.

Voices from the Industry: Mixed Warnings and Support

Key industry stakeholders have echoed DEF’s concerns. Multicoin Capital warned that broad interpretation of the RFIA text could hinder onboarding talent into DeFi development. Paradigm emphasized that “tools without custody shouldn’t be regulated as if they held assets.”

At the same time, other voices call for stronger consumer protections and anti-fraud mechanisms. Uniswap Labs and a16z Crypto have voiced general support for regulatory clarity—so long as it doesn’t jeopardize innovation or impose unnecessary compliance on open protocols.

Technical Complexity: The Difficulty in Drafting Effective Law

Crafting regulation to accommodate algorithmic protocols, governance tokens, yield strategies, and liquidity pools challenges legislators unfamiliar with smart contract mechanics. Questions over who holds “control” in decentralized systems remain unresolved: Is it token holders, governance delegates, or developer teams?

DEF recommends that Congress consult technical experts and consider modular definitions that differentiate between software contributors, platform operators, and custodians. This approach, it argues, would preserve accountability without penalizing benign contributors.

Looking Ahead: What to Monitor

Stakeholders and observers should track these key signals in the weeks ahead:

Whether senators introduce language distinguishing custody from open‑source code development.
Proposals offering exemptions based on developer role or absence of user funds.
Technical hearings featuring DeFi architects explaining protocol behavior and governance.
Federal preemption clauses clarifying that state laws cannot override the national standard.
Amendments proposed by traditional finance that may widen regulatory scope.

Possible Outcomes and Impacts

If the RFIA is amended along DEF’s lines, U.S. DeFi may enjoy a legal environment that encourages innovation, offshore adoption, and global competitiveness. American DeFi protocols would remain open-source, permissionless, and developer-friendly.

On the other hand, if RFIA follows a traditional finance template without sufficient modification, developers may gravitate overseas, commercial projects might centralize, and decentralization itself may become less practical in regulatory-heavy terrain.

Conclusion: The Stakes of RFIA in the Era of Web3

The Responsible Finance Innovation Act has the potential to be a watershed moment in U.S. crypto regulation—a balancing act between investor protection and technology innovation. Whether that balance is achieved hinges on how lawmakers address the unique characteristics of DeFi.

What’s clear today is that the industry is not rejecting regulation outright—it is advocating for nuance, clarity, and proportionate enforcement. The debate now centers less on if regulation should exist, and more on how it is framed. And in the coming weeks, Senate decisions on definitions, exemptions, and federal preemption will shape whether U.S. DeFi survives—and thrives—or instead is reshaped by the very rules meant to govern it.

The future of decentralized finance in America may very well depend on this legislation—and the willingness of policymakers to understand that code is not custody.

Writer @Ellena

Ellena is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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