Oct. 24, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (File Number S7-32-21). While I appreciate the SEC's intention to enhance investor protections and address gaps in the custody rule, I have some concerns regarding the potential negative impact of these proposed regulations on decentralized finance (DeFi) and their lack of sufficient limitations on reporting requirements abroad. Firstly, I am concerned about the potential detrimental effect these regulations may have on the growth and development of decentralized finance projects. DeFi has emerged as a revolutionary financial system, offering decentralization, transparency, and financial inclusion to users worldwide. However, the proposed rules may inadvertently hinder the innovation and potential financial inclusion of DeFi projects. The inherently decentralized nature of DeFi protocols and the absence of intermediaries make it challenging to comply with centralized custody requirements. By imposing such stringent rules on DeFi projects, these regulations could stifle innovation and limit access to decentralized financial services for individuals globally, contradicting the mission of enhancing investor protections. In addition, I find it concerning that the proposed regulations fail to sufficiently limit reporting requirements for protocols operated outside the United States and for users located outside the country. While I understand the need for robust oversight and protection of investors, it is crucial to strike a balance that does not unduly burden protocols operating abroad or hinder cross-border participation. The lack of clear limitations on reporting requirements for international protocols and users could result in additional compliance costs, regulatory complexities, and potential barriers to entry for global users. This not only hampers international collaboration but also risks stifling the growth of the DeFi industry, limiting its ability to provide inclusive financial services to individuals around the world. Furthermore, the proposed rules should account for the unique characteristics and challenges posed by the decentralized nature of DeFi protocols. Instead of attempting to fit DeFi within the existing custodial framework, a more nuanced approach would be to develop a separate regulatory framework specifically tailored to DeFi. This would enable the SEC to address investor protections and regulatory oversight while allowing for innovation and growth within the DeFi ecosystem. A one-size-fits-all approach may not be appropriate for this rapidly evolving sector, and it is essential to strike the right balance between investor protection and fostering innovation. In conclusion, while I acknowledge the SEC's efforts to enhance investor protections and address gaps in the custody rule, I urge the SEC to carefully consider the potential negative impact of these proposed regulations on decentralized finance and their lack of sufficient limitations on reporting requirements abroad. By taking into account the unique characteristics of DeFi and promoting international collaboration, the SEC can strike the right balance between regulation and innovation, ultimately ensuring a robust financial system that prioritizes investor protections while allowing for the growth and development of decentralized finance. Thank you for considering my comment. Sincerely, Asi Hassan