Oct. 25, 2023
Dear Secretary, I am writing to submit my public comment on the proposed rule "Safeguarding Advisory Client Assets" from the Securities and Exchange Commission (SEC). While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have certain concerns regarding the potential negative impact on decentralized finance (DeFi) and the regulation of digital assets or cryptocurrencies. 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 disruptive force in the financial industry, offering peer-to-peer financial services and eliminating the need for traditional intermediaries. By imposing additional regulatory burdens, the SEC may inadvertently stifle this innovative ecosystem, hindering the benefits it can provide to millions of individuals around the world. Furthermore, the regulation of digital assets or cryptocurrencies requires careful consideration. Digital assets, such as cryptocurrencies, are built on blockchain technology, transforming the way we transact and store value. However, regulatory uncertainties surrounding these assets pose challenges for investors, entrepreneurs, and developers alike. It is essential that the SEC adopts a balanced approach that fosters innovation while ensuring investor protection. In their current form, the proposed rules may inadvertently impede the growth of digital asset markets. Exclusive control over crypto assets, as outlined in the rule, can be particularly challenging to demonstrate due to the nature of blockchain technology. This lack of clarity may deter investment advisers from venturing into the cryptocurrency space, limiting investor access to this emerging asset class. Moreover, the heightened compliance requirements and increased reporting obligations for investment advisers could disproportionately affect small entities and start-ups in the DeFi ecosystem. These entities often have limited resources, and the added costs of compliance may hinder their ability to compete and innovate effectively. It is crucial that the SEC carefully considers the impact of these rules on small entities and seeks ways to minimize any unintended burdens. To strike the right balance between investor protection and fostering innovation, the SEC should consider alternative approaches that provide regulatory clarity, promote safe market practices, and support the growth of DeFi initiatives. Flexible regulatory frameworks can go a long way in accommodating new technologies and ensuring a level playing field for both traditional financial institutions and emerging players. In conclusion, the proposed rule "Safeguarding Advisory Client Assets" has significant implications for the DeFi ecosystem and the regulation of digital assets. While investor protection is paramount, it is vital to consider the potential negative impact on financial innovation and the need for regulatory clarity in the evolving digital asset landscape. I urge the SEC to carefully consider these concerns and seek a balanced approach that supports both investor protection and the growth of innovative financial technologies. Thank you for allowing me to provide my input on this important matter. Sincerely, George Zhaven