Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to raise my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand the intention behind the rule is to enhance investor protections, address gaps in the custody rule, and promote transparency, I am concerned about the potential negative impact these regulations may have on decentralized finance (DeFi) and the growth of digital assets, specifically crypto. Digital assets and cryptocurrencies have emerged as revolutionary financial tools, leveraging blockchain technology to enable decentralized transactions and foster financial inclusion. The proposed rules, particularly the expanded scope of the rule to include a broader range of investments, may hinder the growth and development of decentralized finance projects, limiting innovation and potential financial inclusion. By imposing additional regulatory burdens on investment advisers handling digital assets, the proposed rules may discourage investment in digital asset projects, slowing down progress in this transformative ecosystem. It is crucial to foster an environment that encourages experimentation and allows for market-driven innovations to flourish. Furthermore, the use of digital assets in the custody and safeguarding of client assets poses unique challenges. While the rule provides some guidelines on how investment advisers should address the safeguarding of such assets, there are still regulatory uncertainties that need to be addressed. The proposed rules should strike a balance between investor protection and the need to foster innovation in the digital asset space. Restrictive regulations may stifle the ability of decentralized finance projects to experiment and iterate, limiting their capacity to create new and inclusive financial systems. Rather than hinder this emerging sector, it is essential to promote collaboration between regulatory bodies and the digital asset community to establish clear guidelines that encourage responsible innovation while ensuring investor protection. Collaboration will allow regulators to stay informed, observe successful models, and react appropriately to ensure the best outcomes for investors and the broader financial ecosystem. Considering the dynamic nature of the digital asset industry and the transformative potential it holds, it is crucial to adopt a flexible and open-minded approach to regulation. Rushed or overly restrictive regulations can inhibit the capacity to learn from the market and make necessary amendments to protect investors and promote efficient market functioning. In conclusion, I urge the SEC to carefully consider the potential negative impact the proposed rules may have on decentralized finance and the growth of digital assets. Striking a balance between investor protection and fostering innovation is essential to unlock the full potential of this transformative sector. I encourage the SEC to engage in meaningful dialogue with industry stakeholders to develop regulations that take into account the unique nature of digital assets and promote responsible innovation. Thank you for considering my concerns. Sincerely, Sean Lyons