A safe harbor for software: Why the SEC should clarify broker rules for blockchain apps
The U.S. Securities and Exchange Commission recently acknowledged what many in the crypto industry have long recognized: Digital assets and blockchain technologies are poised to transform capital markets.
The agency just launched “Project Crypto,” an ambitious plan to move U.S. capital markets onchain. The announcement followed a report from President Trump’s Working Group on Digital Assets that called for sweeping reforms, such as granting the CFTC authority to regulate spot markets of non-security digital assets and providing regulatory clarity to decentralized finance (DeFi) platforms. These efforts signal a growing recognition of the benefits that blockchain technologies can deliver. They also show a growing understanding that digital assets and blockchain technologies don’t fit neatly into legacy regulatory frameworks — and that forcing them into pre-existing molds may do more harm than good.
That’s why we, together with the DeFi Education Fund, are proposing a safe harbor from the broker-dealer registration requirements of the Securities Exchange Act of 1934 for blockchain applications — the neutral software programs that enable users to interact with public blockchain networks and smart contract protocols, like DeFi and non-fungible token (NFT) marketplace protocols. By reducing reliance on intermediaries, these apps make it possible for tokenized securities to capitalize on the benefits of blockchain technology: truly disintermediated, automated, trustless and instantaneous transactions, with substantially lower costs.
What’s the problem?
Apps are software — typically embedded in wallets or deployed via websites — that enable users to interact with decentralized blockchain systems without taking custody of assets, exercising discretion, or acting on behalf of users. They simply provide a user interface that helps people transact directly onchain. This opens an entire world of peer-to-peer transactions, where users can make stablecoin payments, purchase network tokens on decentralized exchanges, trade digital collectibles like NFTs, or engage in borrowing and lending transactions all without relying on any intermediaries.
While decentralized blockchain systems underlying apps are clearly excluded from the SEC’s broker-dealer registration regimes, apps face regulatory uncertainty because they are typically developed and maintained by centralized actors. The SEC has previously taken the position — through enforcement actions and Wells notices — that developers of apps could be deemed brokers if they enabled users to transact in securities. That approach is flawed and threatens to chill innovation in one of the most promising areas of the new digital financial system.
Concerns about the SEC’s prior approach aren’t just about inconvenient regulatory burdens. Rather, requiring broker registration for neutral apps would force software developers to take on roles and responsibilities they never assumed — acting as gatekeepers, taking custody, and intermediating activity — all of which undermine the benefits of blockchains systems and create new risks for users.
What’s the solution?
We propose a safe harbor that provides a rebuttable presumption that a software interface that enables users to engage in peer-to-peer transactions, including in transactions of tokenized securities, is not engaged in broker-dealer activity. To qualify for this safe harbor, an app must meet four objective criteria:
- Non-custodial: The app must never take control of user funds. All signing and transaction submission must be user-initiated.
- No discretion: The app must not exercise discretion on behalf of the user in the execution of transactions. It may use optimization software (routers or solvers) to identify best paths, but only if they operate on objective parameters, are source-available or auditable, and do not involve compensation contingent on routing outcomes.
- No solicitation or investment recommendations: The app must avoid providing investment recommendations, and may only passively display neutral market data or functionality.
- Underlying protocols must be decentralized: The app interfaces with protocols that have eliminated operational control — meaning they are autonomous, permissionless, non-custodial, and credibly neutral — or have clearly demonstrated their good faith intention to decentralize. Limited exceptions may apply for early-stage protocols under certain thresholds.
Why now?
Blockchain technologies offer enormous benefits — reduced costs, faster settlement, expanded access — and software interfaces are critical infrastructure for unlocking these gains. Recognizing this, the administration is in a race to unlock innovation, and that starts with regulatory clarity. Developers shouldn’t have to guess whether building public, neutral, and non-custodial software exposes them to the risk of being treated like financial intermediaries.
This proposal gives the SEC a pathway to set boundaries, reinforce its mission to protect investors, and encourage the responsible development of decentralized technologies. Doing so will help ensure America leads in digital infrastructure for the decades ahead.
Read our full proposal.
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