The decentralized finance (DeFi) sector, a cornerstone of the $3 trillion cryptocurrency market, faces an unprecedented legal threat: U.S. prosecutors are wielding a 75-year-old anti-money transmission law to target software developers who never touch user funds, according to Crypto Law and pro-XRP lawyer John Deaton. Even as XRP news around the Ripple vs SEC case takes a turn for the good, regulatory clarity seems too much to ask from regulators.
The Ripple Effect: From XRP to a Systemic Crackdown
In December 2020, the SEC sued Ripple Labs, it was one of the biggest XRP news. SEC alleged Ripple’s XRP token was an unregistered security. But the case took a broader turn when the agency claimed XRP itself—not just Ripple’s sales—violated securities laws.
Pro-XRP attorney John Deaton, founder of CryptoLaw, represented 75,000 XRP holders in the ongoing lawsuit, calling the SEC’s approach a “dangerous overreach.”
The crypto industry initially dismissed the Ripple case as isolated. That changed in 2023 when the SEC filed similar charges against Coinbase and Kraken, claiming tokens like Solana (SOL) and Cardano (ADA) were securities. The pattern revealed a widening regulatory net.
Chokepoint 2.0 and the Fed’s Crypto Clampdown
Parallel to the SEC’s actions, regulators launched “Chokepoint 2.0,” a campaign to restrict crypto firms’ access to banking services, wrote Deaton.
Custodia Bank, led by CEO Caitlin Long, fought the Federal Reserve after its master account application was denied in 2023—a move Long called “anti-innovation.”
While SEC Chair Gary Gensler’s recent departure hinted at potential relief, the Department of Justice (DOJ) escalated its own battle. Its target: developers of noncustodial privacy tools like Tornado Cash and Samourai Wallet.
At the heart of the DOJ’s cases is Section 1960 of Title 18, a 1940s-era law requiring money transmitters to register with FinCEN.
In 2019, FinCEN clarified that only entities controlling user funds needed licenses. According to Deaton, crypto developers assumed they were exempt if their code operated autonomously.
The DOJ disagrees. In 2023, it charged Tornado Cash developer Roman Storm and Samourai Wallet’s creators with operating unlicensed money-transmitting businesses—despite neither handling user funds. Prosecutors argue the mere creation of privacy-focused software violates Section 1960.
In February 2024, Judge Katherine Failla, who also oversees the SEC’s Coinbase case, validated the DOJ’s stance. Her ruling stated developers could face prosecution under Section 1960 even without controlling funds, exposing them to five years in prison per violation.
The implications are stark. Thousands of DeFi protocols exist today, many built by anonymous or pseudonymous teams. If Storm’s case sets a precedent, developers globally risk U.S. prosecution for writing open-source code per Deaton’s post on X (formerly Twitter).
Deaton warns the threat is existential: “If Roman Storm loses a single day of freedom, the chilling effect on DeFi could be irreversible.” Privacy advocates argue the DOJ’s interpretation conflates software with criminal intent, bypassing the “safe harbor” FinCEN’s guidance once offered.
XRP News: A Call to Arms for Crypto’s Legal Frontier
The crypto sector now faces two battles: one against the SEC’s securities claims and another against the DOJ’s reinterpretation of decades-old laws.
Legal experts stress the need for legislative clarity. “Regulators are retrofitting old laws to new tech,” says Deaton. “Without updated frameworks, innovation will migrate overseas.”
The post XRP News: How U.S. Prosecutors Are Redefining ‘Crime’ to Strangle Crypto appeared first on The Coin Republic.
The Coin Republic – Read More