Apr. 15, 2023
Before I begin I'd like to take a moment to highlight just how absurd it is that I have to write this letter in the United States of America in the year 2023. We're supposed to be the country of freedom, we were founded under the banner of autonomy from tyrants, with the dream that any human could achieve their dreams and seek prosperity and happiness. It is clear from actions taken by the SEC towards the crypto ecosystem that those times are gone. The SEC would prefer that I not be free to make my own financial choices, nor to collaborate with whomever I choose, nor to transact and interact freely with others. It is this tyranny that brought us here in the first place, and I can't wait until your line of thinking on this matter is wholly changed. With that said, on to my actual comment: Decentralized finance, commonly referred to as DeFi, is a rapidly growing segment of the financial industry that operates on blockchain technology. It is a system that enables users to transact and manage their finances without the need for intermediaries such as banks or financial institutions. Due to its decentralized nature, the SEC rule 13b-16 should not and cannot apply to decentralized finance for several reasons. Firstly, DeFi is decentralized, meaning there is no central authority or governing body that controls its operations. This is in contrast to traditional financial institutions that have a centralized structure with hierarchical management. SEC rule 13b-16 is designed to ensure that publicly traded companies maintain accurate and complete books and records. However, in a decentralized system, there are no books or records to be maintained by a central authority, as the ledger is transparent and accessible to all participants. Secondly, the nature of DeFi transactions makes it challenging to identify the person or entity responsible for maintaining the books and records. Transactions are carried out using smart contracts, which are self-executing contracts that automatically enforce the terms of the agreement. Since these contracts are automated, there is no one responsible for maintaining the books and records, making it impossible for the SEC rule to be applied to DeFi. Thirdly, DeFi is a global phenomenon, and its users are not limited to a particular jurisdiction. The SEC rule 13b-16 is specific to companies listed on US stock exchanges, and it is difficult to apply it to a decentralized system that operates globally. Moreover, the SEC has limited jurisdiction outside the US, which makes it impossible to enforce its rules on DeFi platforms that operate from other countries. In conclusion, the SEC rule 13b-16 is not applicable to decentralized finance due to its decentralized nature, the use of smart contracts, its global reach, and the absence of a central authority to maintain books and records. The DeFi ecosystem is still evolving, and regulators need to understand its unique characteristics before trying to impose traditional regulatory frameworks. The development of new regulatory frameworks that take into account the unique characteristics of decentralized systems is necessary to ensure that DeFi platforms operate in a transparent and secure environment that is conducive to innovation and growth. - Carey Tordsen