Oct. 22, 2023
Dear SEC, I am writing to provide my public comment on the proposed rule, "Safeguarding Advisory Client Assets," issued by the Securities and Exchange Commission (SEC). While I understand the objective of enhancing investor protections and addressing gaps in the custody rule, I have concerns regarding the potential negative impact on decentralized finance (DeFi) and the risk of identity theft associated with the proposed regulations. Firstly, I would like to express my concerns about the potential hindrance to the growth and development of DeFi projects. DeFi has emerged as an innovative and decentralized financial system that promotes financial inclusion, removes intermediaries, and provides opportunities for individuals who are underserved by traditional financial institutions. By imposing stringent regulations, particularly when it comes to collecting user information, we risk stifling this promising sector and limiting its potential benefits. Striking a balance between investor protection and encouraging innovation should be a priority for the SEC. Additionally, I am troubled by the requirement for DeFi participants to collect sensitive taxpayer information under the guise of tax reporting. This raises serious concerns about the security and protection of user data. DeFi platforms are built on trust and security, but by mandating the storage of such information without proper safeguards, we open the door to potential data breaches and identity theft. We must be mindful of the unintended consequences that could result from these requirements and ensure that proper measures are in place to protect users' confidential information. Moreover, I believe that the proposed regulations may inadvertently encourage the creation of honey pots for identity theft. The accumulation of vast amounts of sensitive taxpayer information in the custody of DeFi participants creates a tempting target for malicious actors seeking to exploit vulnerabilities in the system. We need to carefully consider the potential risks associated with the proposed regulations and find alternative ways to safeguard client assets without jeopardizing user privacy and security. It is important to recognize that DeFi projects have shown immense potential in providing financial services to underserved individuals and communities. By embracing decentralized finance and striving to understand its unique characteristics, we can foster innovation and promote financial inclusion. The proposed regulations, as they currently stand, have the potential to hinder the growth of this promising sector and limit its ability to deliver on its promises. In conclusion, I urge the SEC to reevaluate certain aspects of the proposed rule that may have a negative impact on decentralized finance. Specifically, I recommend the commission carefully consider the potential risks of identity theft and the accumulation of sensitive taxpayer information. Let us work together to strike a balance between investor protection and innovation, ensuring that we build a regulatory framework that fosters growth, inclusivity, and security in the decentralized finance space. Thank you for considering my concerns. I appreciate the opportunity to provide my input on this matter. Sincerely, Jeremy Donovan