Oct. 14, 2023
To Whom It May Concern: I am writing in response to the proposed SEC rule regarding the safeguarding of client assets. While I appreciate the intent behind this rule, I have concerns about its broad applicability to decentralized cryptocurrency exchanges. Decentralized exchanges like Uniswap and PancakeSwap are autonomous blockchain-based protocols that allow for trustless peer-to-peer trading of crypto assets. There is no centralized entity or company that exercises discretion or control over trades on these platforms. The exchanges simply provide open-source smart contract code that facilitates atomic swaps between traders' crypto wallets. Importantly, decentralized exchanges do not hold custody of user assets at any point. Trades occur directly between users' self-hosted crypto wallets. Without custody, these platforms have no ability to safekeep, misappropriate, or conduct reconciliation of client assets. The SEC needs to not merely update old rules but Congress must pass to legislation for this new asset class. Rules from the 1930s do not and should not be forced onto new Digital Assets such Defi and Cryptocurrency as a whole without serious consideration given. Given their entirely autonomous nature and lack of custody over client funds, decentralized exchanges cannot reasonably be considered "investment advisers" under the existing federal securities laws. Trying to apply this proposed rule to regulate non-custodial DeFi protocols would be extremely challenging if not completely infeasible. It could also restrict innovation in this emerging sector of crypto finance. I urge the SEC to clarify that decentralized, non-custodial cryptocurrency trading platforms do not qualify as investment advisers for purposes of this rule. Attempting to extend the requirements around reconciliations, auditing, and custody to these autonomous DeFi protocols would likely create unnecessary compliance burdens without meaningfully enhancing investor protections. Thank you for the opportunity to provide comments on this important issue