Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposal may have potential negative impacts on token utility, specifically in the realm of digital assets or cryptocurrencies. Digital assets, such as cryptocurrencies, have emerged as an innovative and transformative technology within the financial sector. Blockchain-based digital assets offer new opportunities for decentralized finance, global payment systems, and secure record-keeping. However, regulatory uncertainties surrounding these assets pose significant challenges for their integration into existing regulatory frameworks. One specific concern is the expansion of coverage to include a broader range of investments held in a client's account. While this may be necessary to ensure investor protection, it could inadvertently hinder the ability of certain digital assets to function as utility tokens. Utility tokens are a key component of many blockchain networks, enabling users to access and utilize specific services or functionalities within decentralized systems. By subjecting these tokens to the custody rule, their intended use cases may become constrained. Furthermore, the proposal acknowledges the challenges in demonstrating exclusive control over digital assets. The nature of blockchain technology ensures transparency and immutability, which can serve as evidence of ownership and control. However, the proposed rule may impose burdensome requirements that pose significant challenges for investment advisers in effectively demonstrating this control. The undue burden of proving exclusive control could deter investment advisers from engaging with digital assets or restrict the ability of clients to include digital assets in their investment portfolios. It is vital to strike a balance between investor protection and fostering innovation within the digital asset ecosystem. While the SEC's mission is to protect investors, it must also take into account the transformative potential of emerging technologies. I urge the SEC to consider the unique characteristics of digital assets when finalizing the rule and provide clear guidance that allows for the continued development and utilization of utility tokens without unduly impeding their potential benefits. In light of these concerns, I would also like to inquire about the SEC's stance on the use of blockchain technology for recordkeeping and custody of client assets. Given the inherent security and efficiency advantages of blockchain, it could potentially provide increased protection against fraud and unauthorized access. Has the SEC explored the utilization of blockchain technology as an alternative mechanism for achieving the objectives of the proposed rule? In conclusion, I appreciate the SEC's efforts to bolster investor protections through the proposed rule on safeguarding advisory client assets. However, it is vital to consider the potential negative impact on token utility within the digital asset ecosystem. I encourage the SEC to foster an inclusive regulatory environment that allows for the continued development and utilization of digital assets to unleash their transformative potential while ensuring adequate investor protection. Thank you for your attention to these concerns. Sincerely, A Concerned U.S. Citizen