Oct. 23, 2023
Thank you for the opportunity to comment on the proposed amendments around safeguarding advisory client assets. While protecting investors is critically important, some aspects of this proposal as applied to decentralized finance (DeFi) go too far. It’s important to first of all understand clearly that DeFi's permissionless innovation expands access and efficiency for all investors in a transparent and decentralized manner. The proposed custody, auditing, and disclosure requirements in this proposed rule, however, conflict with the ethos of self-sovereignty and trustless exchange underlying DeFi. Requiring DeFi platforms to register as investment advisers strictly contradicts the decentralized nature of these protocols. It’s also important to understand the fact that, DeFi already has public on-chain transparency around assets under management and smart contract operations. User funds are controlled via private keys, not centralized custodial entities. Attempting to retrofit legacy regulations onto native DeFi protocols will hinder innovation without offering meaningful additional protections. It is advisable to allow DeFi to remain a largely unregulated space to flourish, with targeted guidance or safe harbors for platforms following best practices around auditing, security, governance, and financial stability. With a balanced approach, DeFi's advantages can continue democratizing finance safely. However, sweeping adviser registration and custody rules will incentivize re-centralization and undermine DeFi's core values aligned with the SEC's mission: promoting fairness, efficiency, and transparency. I welcome further discussion on crafting prudent policy preserving decentralized finance's societal benefits. Thank you for reading and considering these perspectives.