Oct. 20, 2023
excessively strict digital asset custody rules imposed uniquely by the SEC could negatively impact beneficial global economic interdependence. Some potential issues: Fragmented liquidity - If regulations are too fragmented across jurisdictions, custody could silo liquidity regionally rather than enable a unified global marketplace. Reduced capital flows - Overly burdensome requirements may deter cross-border investments and capital flows to regions where capital is needed most. Decreased interconnectedness - Strict localization mandates could reduce interconnectedness between global digital asset systems. Trade imbalances - Regulatory costs may disadvantage certain jurisdictions, contributing to asset trade imbalances. Technology suppression - Prohibitions against transferring technologies to certain regions could hamper innovation. Offshoring incentives - Divergent regulations may incentivize regulatory arbitrage and offshoring to less stringent jurisdictions. Limited interoperability - Overly prescriptive technology mandates could reduce systems' abilities to interoperate smoothly across borders. I agree - while strong custody standards are important, regulations should aim to seamlessly connect global markets rather than silo them. The SEC should ensure its rules don't undercut the efficiency, liquidity, and innovation benefits of open, interconnected digital asset systems. Striking the right balance will require nuance and coordination with other global regulators.