Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand the need to enhance investor protections and address gaps in the current custody rule, I am concerned about the potential negative impact these rule proposals may have, specifically on the decentralized finance (DeFi) sector. As the popularity of decentralized finance continues to grow, it has the potential to revolutionize traditional financial systems, promote financial inclusion, and empower individuals with greater control over their assets. However, the proposed rules may hinder the growth and development of DeFi projects, limiting innovation and potential financial inclusion. One of the key issues I would like to highlight is the scope of the rule. While it is understandable that the SEC seeks to expand coverage to include a broader range of investments held in a client's account, it is crucial to consider the unique characteristics of decentralized finance. DeFi operates on blockchain technology, where smart contracts automatically execute financial transactions without the need for intermediaries. The proposed rules, if applied without considering these nuances, may impose unnecessary burdens on DeFi projects, stifling their growth and competitiveness. It is essential to create a regulatory framework that fosters innovation and supports the development of DeFi while still ensuring investor protection. Moreover, the proposed rule discusses the application of the rule to crypto assets. While it is commendable that the SEC is addressing this topic, it is crucial to strike the right balance between protecting investor assets and facilitating the growth of the crypto asset market. Overly stringent requirements may discourage legitimate participants in the market and drive innovations offshore. Finding an appropriate and nuanced approach to regulate crypto assets will be vital to prevent stifling innovation in the space. Furthermore, the proposed rule's amendments to the surprise examination requirement may have unintended consequences on the DeFi sector. Implementing surprise examinations may disrupt the decentralized nature of DeFi platforms and may impose disproportionate burdens on small DeFi projects. Instead, the SEC should consider alternative forms of oversight that are more compatible with the decentralized nature of these platforms, such as encouraging the adoption of transparency mechanisms and audits conducted by reputable third-party firms. Additionally, I am concerned about the potential impact of the proposed rules on competition and capital formation. DeFi projects often rely on the ability of developers and entrepreneurs to experiment, iterate, and learn from their mistakes. The proposed rules, if overly burdensome, may deter potential participants from entering the market, limiting competition and stifling innovation. A balanced regulatory approach that promotes competition and fosters capital formation would be more suitable for the DeFi sector. In conclusion, while I appreciate the SEC's commitment to investor protection, it is crucial to approach the regulation of decentralized finance with a nuanced understanding of its unique characteristics and potential benefits. Imposing overly burdensome rules on the DeFi sector may hinder innovation, limit financial inclusion, and hamper the growth of a transformative sector in the financial industry. I encourage the SEC to engage with industry experts and stakeholders to develop a regulatory framework that strikes the right balance between investor protection and fostering innovation in the DeFi sector. Thank you for considering my concerns. I look forward to your thoughtful consideration and the opportunity to contribute further to this important discussion. Sincerely, Phil Lawrence