Oct. 15, 2023
I understand your concerns about how these proposed SEC rules could impact decentralized finance (DeFi) and the cryptocurrency space. Here are a few thoughts on potential implications and workarounds: - The rules aim to provide custodial protections for client assets, which creates challenges for truly decentralized protocols where users maintain direct control of funds. This could restrict some DeFi activities for SEC-registered investment advisers. - Strict requirements around qualified custodians may limit advisers' ability to use decentralized wallets and protocols for holding client crypto assets. Centralized exchanges like Coinbase that meet SEC qualifications may be the only option. - Rules around recordkeeping and ownership tracking also create hurdles for fully decentralized and pseudonymous DeFi activities. Compliance may require on-chain identity verification. - Certain DeFi protocols like decentralized exchanges may be viable if they can provide features to enable advisor oversight, auditing, and regulatory reporting. Platforms will likely need to evolve to support compliance needs. - Regulatory clarity from the SEC will be important to support responsible innovation in DeFi. The industry should collaborate to propose frameworks that allow growth while protecting investors. - It will be critical to find the right balance between security/compliance and decentralization. Technology like zero-knowledge proofs could help satisfy regulatory goals without excess centralization. I'd recommend the SEC take a nuanced approach that accounts for the unique nature of crypto assets in this evolving landscape. Let me know if you have any other specific concerns I can address! Thank you, David Tilley Sent with Proton Mail secure email.