Oct. 22, 2023
Dear Securities and Exchange Commission, I, as a concerned citizen, would like to share my thoughts and concerns regarding the proposed rule on safeguarding advisory client assets. While I appreciate the Securities and Exchange Commission's effort to enhance investor protections and address gaps in the custody rule, certain aspects of the proposed rule raise concerns about the potential negative impact on decentralized finance (DeFi) and the inadequate consideration of the unique properties of cryptocurrency. I would also like to highlight the lack of clarity on reporting requirements for digital assets. Potential Negative Impact on Decentralized Finance (DeFi): The proposed rules may hinder the growth and development of decentralized finance projects, limiting innovation and potential financial inclusion. DeFi platforms operate on blockchain technology, which is inherently transparent, secure, and tamper-proof. The proposed custodial requirements may undermine the decentralized nature of DeFi projects by imposing burdensome regulations that do not align with the underlying technological infrastructure. As a result, these rules may discourage participation in DeFi and stifle innovation in this promising sector. Inadequate Consideration of the Unique Properties of Cryptocurrency: The SEC's proposal does not adequately consider the decentralized nature and technological complexities of cryptocurrency, leading to impractical regulatory requirements. Cryptocurrency operates on open and distributed networks, with transactions validated by a consensus mechanism rather than relying on a central authority. Therefore, the nature of custodial arrangements for cryptocurrency differs significantly from traditional assets. Imposing rigid custody rules designed for traditional financial instruments may not appropriately address the unique features and risks associated with digital assets. Lack of Clarity on Reporting Requirements for Digital Assets: The proposal does not provide clear guidance on reporting requirements for digital assets, creating challenges for market participants. The lack of clarity surrounding reporting standards for digital assets may result in ambiguity and inconsistencies, making it difficult for investment advisers to comply with the regulations. Clear and precise reporting guidance is necessary to ensure a level playing field and facilitate compliance without stifling innovation and growth in the digital asset space. In considering these concerns, it is vital to strike the right balance between investor protection and fostering innovation. Imposing overly burdensome regulatory requirements without fully understanding the unique characteristics of DeFi and digital assets may have unintended consequences, hindering economic growth and limiting opportunities for investors. The SEC should strive to create an environment that encourages innovation while safeguarding investor interests. I appreciate the SEC's comprehensive economic analysis and consideration of efficiency, competition, and capital formation in implementing the proposed rules. It is important to assess not only the costs and benefits but also the potential impact on market dynamics and the overall economy. Furthermore, the SEC's willingness to solicit public comments and explore reasonable alternatives demonstrates a commitment to working collaboratively to address public concerns and improve the proposal. In conclusion, I urge the Securities and Exchange Commission to consider the potential negative impact on Decentralized Finance, provide better clarity on reporting requirements for digital assets, and take into account the unique features and risks associated with cryptocurrencies when finalizing the proposed rule on safeguarding advisory client assets. By striking the right balance between regulatory objectives and fostering innovation, the SEC can effectively enhance investor protections while promoting a thriving and inclusive financial ecosystem. Thank you for considering my comments. I encourage the SEC to thoroughly review and address the concerns raised by market participants, industry experts, and concerned citizens like myself. I am hopeful that together, we can create a regulatory framework that ensures investor protection, fosters innovation, and promotes a healthy and competitive financial market. Sincerely, Concerned Citizen