Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC) [Docket No. ABC-1234]. While I understand that the rule aims to enhance investor protections, I believe it may have potential negative impacts on the development of decentralized finance (DeFi) and the growth of digital assets, such as cryptocurrencies. Firstly, the proposed rule's scope, particularly its treatment of digital assets or cryptocurrencies, may have unintended consequences for the burgeoning DeFi sector. Decentralized finance projects built on blockchain technology have the potential to revolutionize traditional financial systems by providing greater financial inclusion, accessibility, and opportunities for individuals across the globe. However, regulatory uncertainties surrounding these technologies already pose challenges for their growth and development. Including digital assets within the proposed rule's definition of custody and subjecting them to cumbersome requirements may inhibit innovation and deter investment in this rapidly evolving space. It is crucial to strike a balance between safeguarding investor assets and fostering the growth of transformative technologies like DeFi. Moreover, this proposed rule could hinder the potential benefits and opportunities that digital assets and cryptocurrencies offer, especially in terms of financial inclusion. These digital assets have the potential to provide efficient and secure transactions, reduce barriers to entry, and offer new investment opportunities for individuals who are otherwise excluded from traditional financial systems. This proposal, however, places additional burdens on investment advisers to demonstrate exclusive control over digital assets, potentially stifling the adoption and use of these innovative technologies. Additionally, the proposed rule's requirements pertaining to qualified custodians may present significant challenges for investment advisers dealing with digital assets. The unique nature of cryptocurrencies, characterized by the absence of a central authority and the control of private keys by individual users, makes it difficult to conform to traditional custody models. Mandating a qualified custodian for these assets could limit their potential benefits and hinder their adoption within regulated investment adviser practices. It is crucial to consider alternative methods of safeguarding digital assets that emphasize effective control without unnecessarily impeding innovation. In conclusion, while I appreciate the SEC's efforts to enhance investor protections, I urge you to carefully consider the potential negative impacts that this proposed rule may have on the growth and development of decentralized finance and the utilization of digital assets. Maintaining a balance between regulatory oversight and fostering innovation is crucial to ensure that investors are protected while also promoting the benefits of transformative technologies. Thank you for considering my concerns. Sincerely, Jose Cuervo H.