Oct. 20, 2023
Dear Secretary, I am writing to provide a public comment on the Securities and Exchange Commission's proposed rule, "Safeguarding Advisory Client Assets." While I understand the goal of enhancing investor protections and addressing gaps in the custody rule, I have several concerns regarding the potential negative impact on decentralized finance (DeFi) and the regulation of digital assets or cryptocurrencies. Firstly, I am concerned that the proposed rules may hinder the growth and development of decentralized finance projects, limiting innovation and potential financial inclusion. DeFi has emerged as an exciting avenue for individuals to access financial services without the need for intermediaries. These projects leverage blockchain technology and digital assets to create transparent and decentralized financial systems. However, the regulatory uncertainties surrounding digital assets pose significant challenges. The proposed rule, particularly in its application to crypto assets, may stifle innovation in DeFi by imposing cumbersome requirements on investment advisers. One of the essential principles of DeFi is the elimination of intermediaries, which allows for greater efficiency and lower costs. By subjecting decentralized projects to the same custody and registration requirements as traditional investment advisers, we risk impeding the progress and potential transformative impact of DeFi. Moreover, digital assets like cryptocurrencies require a nuanced and adaptable regulatory framework. Blockchain technology is evolving rapidly, and the regulatory landscape must keep pace with these advancements. The proposed rule has the potential to create additional barriers for digital asset innovation, discouraging investment in the sector and driving entrepreneurs away from the United States. It is crucial that the SEC promotes a regulatory environment that fosters innovation while safeguarding investor protections. Furthermore, while I understand the need to address challenges in demonstrating exclusive control over crypto assets, it is essential to strike the right balance between protecting investors and fostering innovation. The SEC should consider alternative approaches that accommodate technological advancements without compromising investor protections. Collaboration with industry stakeholders and experts in digital asset regulation can help develop comprehensive and adaptable solutions. In conclusion, I urge the SEC to carefully consider the potential negative impact on decentralized finance and digital asset innovation when finalizing the proposed rule. It is crucial to strike a balance that protects investors while fostering an environment conducive to innovation and growth. I encourage the SEC to engage in meaningful dialogue with the industry and explore alternative approaches that accommodate the unique characteristics of digital assets. Thank you for considering my comments on this important matter. Sincerely, Patrick F.