Apr. 15, 2023
Zach Herring [REDACTED] April 15, 2023 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Comment Letter on Rule 3b-16 and Its Implications for Decentralized Finance Dear Commissioners, I am writing this comment letter as a concerned member of the financial industry to address the potential implications of Rule 3b-16 on the rapidly growing decentralized finance (DeFi) ecosystem. While I understand the SEC's responsibility to protect investors and ensure market integrity, I believe that applying Rule 3b-16 to DeFi projects may not only hinder innovation in this sector but also create unintended consequences for traditional finance. Rule 3b-16's incompatibility with the DeFi ecosystem DeFi platforms are built upon decentralized blockchain networks that prioritize autonomy and peer-to-peer transactions, effectively eliminating the need for centralized intermediaries. Rule 3b-16, designed to regulate traditional finance, relies on the presence of an intermediary to assess its applicability. Therefore, the rule is not only incompatible with DeFi platforms but also fails to account for the unique nature and capabilities of decentralized systems. Unintended consequences for traditional finance Applying Rule 3b-16 to DeFi projects could drive innovation away from the United States, causing the country to lose its competitive edge in the global financial landscape. As DeFi continues to grow, it has the potential to reshape traditional finance, offering lower costs, increased efficiency, and greater accessibility. By hindering DeFi development within the United States, the country risks falling behind in the global race to adopt new financial technologies. Stifling innovation and growth DeFi has the potential to revolutionize how financial services are provided, giving rise to new business models and investment opportunities. However, applying Rule 3b-16 to DeFi projects could deter potential innovators from exploring the full potential of decentralized technologies. Consequently, this could result in lost opportunities for economic growth and job creation within the United States. The need for a nuanced approach to regulation Given the unique characteristics of DeFi platforms, the SEC should consider a more tailored approach to regulation that acknowledges the innovative potential of these technologies while still maintaining investor protection and market integrity. This approach could involve collaborating with industry stakeholders to develop clear, risk-based, and technology-neutral regulations that foster innovation while addressing the SEC's core objectives. In conclusion, I urge the SEC to reconsider the application of Rule 3b-16 to DeFi projects and instead pursue a more nuanced regulatory framework that promotes innovation and growth within the sector. Such an approach will not only benefit the DeFi ecosystem but also ensure that the United States maintains its leadership position in the global financial landscape. Thank you for considering my comments. Sincerely, Zach Herring