Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to provide a public comment on the proposed rule "Safeguarding Advisory Client Assets" (Release No. IA-6240). As a user of blockchain networks, I would like to express my thoughts and concerns regarding the potential negative impact on decentralized finance (DeFi) and the poorly defined terms used in the proposed regulations. Firstly, I believe that the proposed rules may hinder the growth and development of decentralized finance projects, limiting innovation and potential financial inclusion. DeFi has emerged as a powerful ecosystem that offers decentralized, transparent, and efficient financial services to individuals across the globe. By enabling peer-to-peer transactions without the need for intermediaries, DeFi has the potential to empower millions, especially those excluded or underserved by traditional finance. However, the strict regulatory requirements proposed in this rule may restrict the ability of DeFi platforms to operate effectively. The use of poorly defined terms such as "platform," "software," and "ledger" introduces ambiguity and uncertainty. It is crucial to provide clear and concise definitions that accurately reflect the technical nature of these terms to avoid confusion and ensure fair implementation of the rules. Furthermore, the proposed definition of terms such as "wallet" and "validator" does not align with their widely accepted technical meanings in the blockchain community. This discrepancy raises concerns about how these terms would be interpreted and applied in practice. It is essential that the definitions used in the regulations accurately reflect their technical meaning and align with industry standards to avoid unintended consequences and unnecessary restrictions. In addition to these concerns, it is crucial to consider the distinction between genuine DeFi projects and centralized finance (CeFi) projects hiding under the DeFi label. Currently, there are "CeDeFi" contracts with administrator keys that can harm users and violate the principles of decentralized finance. Regulation should differentiate between genuine DeFi projects, which prioritize immutable contracts, independently audited code, and decentralized contract frontends, and CeFi projects that do not adhere to these principles. It is essential for regulations to protect users of blockchain networks rather than favoring big or malicious actors. Therefore, I recommend that the regulations focus on protecting DeFi users by establishing guidelines for "fake DeFi" (CeDeFi) contracts and providing clear criteria for what qualifies as DeFi. Guidelines should emphasize principles that ensure user safety and transparency, such as independent code audits, decentralization, and avoidance of critical oracle dependencies. By promoting these best practices, regulation can effectively protect users and foster the growth of secure and trustworthy DeFi platforms. In conclusion, I urge the Securities and Exchange Commission to carefully consider the potential negative impact of the proposed rule on decentralized finance. It is crucial to provide clear definitions for technical terms used within the DeFi ecosystem, promoting innovation while ensuring investor protection. By focusing on genuine DeFi projects and protecting users from fraudulent practices, regulation can contribute positively to the growth of decentralized finance. Thank you for considering my comments. I appreciate the opportunity to provide input on this important matter. Sincerely, Nenad Maraš