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Trump Administration Assumes Office; Issues Executive Order on Digital Assets
What happened?
Last week, newly-inaugurated President Donald Trump swiftly took a series of executive actions, including freezing regulatory activity, appointing acting chairs for the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), and significantly redefining the federal government’s approach to digital assets.
On January 23rd, President Trump signed an executive order entitled “Strengthening American Leadership in Digital Financial Technology.” The Executive Order establishes a policy to promote U.S. leadership in the digital asset industry and to provide regulatory clarity to the industry. It also establishes a “Working Group on Digital Assets,” whose duties include submitting a report to the President that recommends regulatory and legislative proposals regarding digital assets, proposing a federal regulatory framework for the issuance and use of digital assets, exploring the potential creation and maintenance of a digital asset stockpile, holding public hearings, and receiving input from experts in the digital assets community.
The Order also delineates the United States’ policy to advance the use of open, public blockchains for lawful purposes and the right to self-custody one’s assets without persecution or censorship. Check out DEF’s full analysis of the Executive Order here.
President Trump also announced the selection of CFTC Commissioner Caroline D. Pham as the acting Chair of the Commission and SEC Commissioner Mark Uyeda as acting SEC Chair. President Trump has already nominated Paul Atkins to serve as the permanent Chair of the SEC, and he is expected to assume the role upon Senate confirmation.
In one of his first official acts, acting Chair Uyeda formed the SEC’s first-of-its-kind Crypto Task Force led by Commissioner Hester Peirce with the goal of “developing a comprehensive and clear regulatory framework for crypto assets.” Along with forming the Crypto Task Force, the SEC rescinded the infamous Staff Accounting Bulletin (SAB) No. 121, which imposed onerous accounting requirements on companies holding crypto for their customers, treating them as liabilities, which discouraged institutional participation and added regulatory uncertainty.
Finally, on January 21st, the Senate Finance Committee voted 16-11 to advance Treasury Secretary-Designate Scott Bessent's nomination, paving the way for a full Senate confirmation vote in the coming days.
What does this mean?
Monumental shifts are happening for crypto in Washington. We are particularly appreciative of the Executive Order’s focus on core principles we share, such as promoting and protecting developers’ ability to launch and deploy software protocols and individuals’ right to self-custody their own assets.
The establishment of the Crypto Task Force under the leadership of Commissioner Pierce demonstrates the new administration’s focus on creating a clear, comprehensive, and pro-innovation framework for the crypto industry to develop in the United States.
While there is still much work to be done in Washington, all of these actions convey a clear message that the decentralized future is closer than ever.
Members of Congress Introduce Congressional Review Act Resolution to Overturn IRS’s “Broker” Rulemaking
What happened?
Last week, Senator Ted Cruz (R-TX) and Representative Mike Carey (R-OH) introduced companion resolutions in the House and Senate to use the Congressional Review Act (CRA) to invalidate the Treasury and Internal Revenue Service’s (IRS) misguided and unfairly sweeping DeFi portion of their “broker” rulemaking. Senator Cruz’s resolution is supported by Senators Cynthia Lummis (R-WY), Bill Haggerty (R-TN), Tim Sheehy (R-MT), Thom Tillis (R-NC), and Ted Budd (R-NC).
The finalized rule is so broad as to capture any service that is supposedly “assisting customers in initiating” a transaction as a “broker,” including front-ends, web browsers, and even internet-service-providers (ISPs). Being labeled a “broker” could create an impossible compliance demand for many DeFi protocols, requiring them to collect and report user data they simply do not (and technically cannot) possess.
As a quick refresher, the CRA is a law that allows Congress to review and overturn new federal agency rules and regulations. If both the House and Senate approve the resolution and the President signs it, the rule is invalidated and cannot be reissued in substantially the same form.
What does this mean?
We are deeply grateful to these policymakers who recognize the need to push back against this unlawful and unconstitutional attack by the Treasury and the IRS. The “Broker” rule fundamentally exceeds the Treasury’s statutory authority, disregards the technological realities of DeFi, and would violate the privacy of millions of DeFi users.
DEF filed suit along with Blockchain Association and Texas Blockchain Council challenging the legality of the rulemaking the day the rule was finalized, Congress’s use of the CRA to rescind this ill-conceived midnight rulemaking is the quickest and most efficient way to get rid of this unconstitutional rule. This rulemaking is unlawful and an unconstitutional attack on DeFi developers, users, and the US crypto industry broadly, and is a direct threat to the promise of DeFi and crypto.
Michael Lewellen Files Lawsuit Challenging DOJ’s Attacks on Developers
What happened?
On January 16th, Michael Lewellen filed a lawsuit against the Department of Justice (DOJ) in the United States District Court for the Northern District of Texas for capriciously prosecuting noncustodial software developers as money transmitters under 18 U.S.C. §1960, a federal statute which proscribes failing to register as a “money transmitting business.” According to the lawsuit, Lewellen is a software developer with plans of introducing a DeFi protocol called Pharos, which would enable “crowdfunding campaigns [...] which are not adequately or reliably supported by existing software.” Importantly, Lewellen would never retain control over any of the cryptocurrency exchanged through Pharos.
The key issue in the lawsuit concerns whether Lewellen, in publishing Pharos, engages in an unlawful activity under 18 U.S.C. §1960(b)(1)(B) for failing to comply with the requirements for registering as a money transmitting business under BSA regulations. The lawsuit argues that the Financial Crimes Enforcement Network (FinCEN) “has repeatedly made clear that a software writer like Lewellen is not a money transmitter and is not subject” to BSA requirements, referencing FinCEN’s 2019 Guidance, where they concluded that in order to qualify as a money transmitter under their regulations, a crypto wallet provider would have to exercise “total independent control” over the value in the wallet. Thus, under FinCEN’s interpretation of “total independent control”, noncustodial software developers like Lewellen should not be subject to liability under 18 U.S.C. §1960(b)(1)(B). Through this lawsuit, Lewellen is asking the Court to clear up the statutory disagreement prior to deploying Pharos.
In addition to asserting a Declaratory Judgment Act claim asking the court to declare that his business is not a "money transmitting" business and he is not a "money transmitter," Lewellen asserts a First Amendment claim "that the money-transmitting laws are unconstitutional insofar as they apply to Lewellen’s writing and publishing of non-custodial and immutable software" and a Fifth Amendment claim that asserts that the DOJ's interpretation of the money transmitting laws violates his Due Process rights.
What does this mean?
Every member of the DeFi community should be concerned about the DOJ’s overly-expansive interpretation of the §1960. In DEF’s Paper on the history of the BSA and its application to blockchain participants, we concluded that noncustodial software providers on the blockchain stack cannot and should not be subject to the framework because they do not exercise “total independent control” over user’s crypto and thus are not money transmitters. DEF’s Amanda Tuminelli co-authored an article arguing that liability under §1960 requires proving that a business both obtains and relinquishes control over third-party funds. We thank Michael for his leadership in protecting DeFi developers from DOJs overly-broad interpretations of §1960.
UK Exempts Crypto Staking from Investment Scheme Rules
What happened?
His Majesty’s Treasury has amended the Financial Services and Markets Act (FSMA) to exclude cryptocurrency staking from being classified as a “Collective Investment Scheme” (CIS). This change, effective January 31, 2025, recognizes that cryptoasset staking operates differently from traditional pooled investment vehicles such as exchange-traded funds (ETFs) and investment funds, which are heavily regulated under the UK’s CIS framework. As a refresher, staking involves participants locking their own crypto, to validate blockchain transactions and earn rewards on a proof-of-stake blockchain. Unlike traditional financial products, staking does not involve pooling assets under centralized management to generate shared profits, as reflected in the Treasury’s exemption.
What does this mean?
By excluding staking from the CIS classification, the UK Treasury has ensured that staking will not be subject to the stringent regulations designed for traditional financial products. These regulations would have required operators to obtain FCA authorization, comply with governance standards, disclose detailed information to participants, and adhere to asset management rules—requirements that are unsuitable for staking crypto due to its decentralized nature. As the UK continues to advance cryptoasset regulations along with its Crypto Roadmap, DEF commends the UK government’s thoughtful policy approach to decentralized finance.
