Oct. 22, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Statement Regarding Proposed Rule: Safeguarding Advisory Client Assets Release No. IA-3349; File No. S7-09-29 Dear SEC Commissioners, I am writing to express my strong concerns regarding the proposed rule, "Safeguarding Advisory Client Assets," as outlined in Release No. IA-3349. While I appreciate the Securities and Exchange Commission's dedication to enhancing investor protections, I believe that the proposed rule fails to adequately address the complexities and unique characteristics of digital assets and cryptocurrency, specifically in the context of decentralized finance (DeFi). The emergence of digital assets, particularly cryptocurrency built on blockchain technology, has revolutionized the financial landscape, enabling innovation, financial inclusivity, and efficiency. However, the regulatory uncertainties surrounding the treatment of digital assets pose significant challenges for market participants, including investment advisers. One of my main concerns with the proposed rule is the apparent lack of expertise within the SEC in drafting regulations that account for the intricacies of digital assets. As the market continues to evolve rapidly, new financial tools like DeFi platforms have gained popularity, showcasing the immense potential of this technology. It is crucial that regulations are crafted with a deep understanding of the industry's unique characteristics to foster growth and development without stifling innovation. Decentralized finance, or DeFi, has experienced extraordinary growth in recent years, leveraging blockchain technology to provide financial services without intermediaries. Investments in DeFi applications and protocols have soared, illustrating the exponential growth of this new paradigm. However, the proposed rules do not adequately account for the complexities of safeguarding digital assets in the DeFi space. Traditional custody arrangements, where assets are entrusted to third-party custodians, are not applicable in the context of DeFi platforms. Instead, individuals maintain custody and control over their assets within these decentralized networks. The proposed rule must recognize this unique custody structure and explore alternative safeguards that preserve investor protection while embracing the potential benefits of this transformative technology. Furthermore, the proposed rule's application to crypto assets raises significant concerns. Cryptocurrencies operate on open, decentralized networks, where control and ownership reside with the individual investor rather than a traditional custodian. The concept of exclusive control, as defined in the proposed rule, may not align with the decentralized nature of cryptocurrency custody. This misalignment could create compliance challenges and burdens for investment advisers. A more nuanced approach is required to address these challenges, considering the decentralized nature of cryptocurrency custody and exploring ways to ensure investor protections without stifling innovation. To address these concerns, I strongly urge the SEC to engage in open dialogue and collaboration with industry experts, technologists, and stakeholders within the digital assets and cryptocurrency space. By harnessing the insights and expertise of these individuals, the SEC can appropriately account for the unique characteristics of digital assets and DeFi in its regulatory framework. This collaborative effort will foster a more robust and effective framework that adequately safeguards investor assets while supporting innovation and growth. In conclusion, while I commend the SEC's dedication to enhancing investor protections, it is evident that the proposed rule falls short in addressing the complexities and unique characteristics of digital assets and cryptocurrency. To promote a balanced regulatory environment and ensure investor protections, the SEC must engage with industry experts and stakeholders to gain a thorough understanding of these innovative technologies. I implore the SEC to consider a more nuanced approach that supports industry growth without impeding the potential benefits of digital assets, cryptocurrencies, and DeFi. Thank you for considering my concerns regarding the proposed rule. I firmly believe that a collaborative and comprehensive approach will lead to a more effective regulatory framework that safeguards investor assets while fostering innovation and growth within the digital asset ecosystem. Yours sincerely