Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to provide public comment on the proposed rule "Safeguarding Advisory Client Assets" (Release No. IA-8010; File No. S7-36-18). While I appreciate the intention behind this proposal to enhance investor protections and address gaps in the custody rule, I have significant concerns regarding its potential negative impact on the emerging sector of decentralized finance (DeFi) and the privacy rights of individuals. First and foremost, I am deeply concerned that the proposed regulations may hinder the growth and development of decentralized finance projects. DeFi has emerged as a transformative force in the financial industry, promoting financial inclusion, transparency, and innovation. By imposing burdensome reporting requirements on various participants in DeFi, the proposed rules risk stifling this burgeoning sector. If multiple, inconsistent reports are generated for the same transaction, it will lead to confusion and inefficiency in DeFi operations. We should be fostering an environment that encourages the continued growth and innovation of DeFi, rather than imposing unnecessary regulatory burdens that may inadvertently stifle its potential. Furthermore, privacy is a fundamental right that should be protected in any regulatory framework. The proposed regulations may raise concerns about privacy, particularly in relation to client assets held in decentralized platforms. As the use of decentralized and blockchain-based technologies continues to grow, individuals have become increasingly concerned about the security and safeguarding of their personal information and assets. It is crucial that any regulatory measures strike a balance between investor protection and privacy rights. As investment advisers are required to maintain records related to client notifications, custodian information, and transactions, it is important to ensure that appropriate safeguards are in place to protect the privacy and security of sensitive client data. In considering the economic analysis, benefits, costs, efficiency, and competition effects of the proposed rule, it is vital to acknowledge the potential unintended consequences that may arise from a one-size-fits-all approach. DeFi projects, by their decentralized nature, inherently operate differently from traditional financial systems. A nuanced understanding of the unique characteristics of decentralized systems is necessary to create regulations that effectively promote investor protection and oversee the sector without stifling innovation. In the interest of maintaining a vibrant and innovative financial ecosystem, I urge the Securities and Exchange Commission to reconsider certain provisions of the proposed rule that may hinder the growth of DeFi projects and unintentionally compromise individual privacy. In particular, I suggest the Commission work closely with experts in the field of decentralized finance to better understand the intricacies of these systems. This collaborative approach will help ensure that regulation strikes the right balance between investor protection and innovation. Thank you for considering my concerns and for the opportunity to provide public comment on this important matter. Sincerely, Kevin D