A leading U.S. crypto advocacy organization, the DeFi Education Fund (DEF), has urged the U.K.’s Financial Conduct Authority (FCA) to adopt a narrow and functional definition of “control” as it finalizes new regulations governing crypto-asset activities.

In a formal response to the FCA’s consultation paper, the Washington, D.C.-based group argued that regulatory obligations should apply only where there is “unilateral control” over user assets or transactions , not simply because an individual or team developed, contributed to, or maintains decentralized finance (DeFi) software.

Control Should Define Regulation

At the core of DEF’s argument is a principle:

Regulation should hinge on operational authority, not authorship of code.

The group maintains that entities should fall within regulatory scope only if they possess concrete powers such as:

  • The ability to initiate or block transactions

  • The authority to modify protocol parameters

  • The power to exclude users

  • Direct custody or unilateral access to user funds

Without such control, DEF argues, developers of non-custodial DeFi protocols should not be treated as centralized financial intermediaries.

“Control should be the determinative factor,” the group stated, warning that broad definitions could inadvertently sweep software developers into intermediary-style compliance obligations , even when they lack custody or transactional authority.

Non-Custodial Protocols vs. Centralized Platforms

DEF strongly pushed back against applying rules designed for centralized trading platforms to decentralized, automated systems.

According to the submission:

  • Prudential requirements

  • Platform access rules

  • Extensive reporting obligations

  • Full money-laundering compliance frameworks

may be structurally incompatible with permissionless, automated blockchain protocols.

Unlike centralized exchanges that hold customer funds and exercise discretion over transactions, many DeFi protocols operate via self-executing smart contracts without any single party controlling outcomes once deployed.

Treating these protocols as traditional intermediaries, DEF argues, misunderstands their architecture.

Challenging the Risk Narrative

The group also questioned the FCA’s framing of DeFi-specific risks.

DEF contends that:

  • Cybersecurity vulnerabilities are not unique to blockchain systems.

  • Public blockchains provide greater transparency, potentially aiding efforts to combat illicit finance.

  • Open ledgers can improve traceability compared to opaque traditional financial systems.

By emphasizing structural differences between DeFi and centralized platforms, DEF is advocating for a regulatory model that recognizes technological nuance rather than imposing legacy financial frameworks wholesale.

A Pivotal Moment for U.K. Crypto Regulation

The FCA is currently working to expand its regulatory perimeter to include a broad range of crypto activities as the U.K. moves toward a comprehensive digital asset framework.

The outcome of this consultation could significantly shape:

  • How DeFi projects operate in the U.K.

  • Whether developers face licensing requirements

  • The competitiveness of the U.K. as a global crypto hub

DEF’s submission reflects growing international scrutiny over how regulators define “control” in decentralized systems , a concept that may ultimately determine whether DeFi remains permissionless or becomes regulated like traditional finance.

As governments worldwide refine crypto policy, the debate over unilateral control versus protocol development could become one of the defining regulatory battles of the next decade.